Economies of scale exist in REITs and affect investment decision making. Investors value larger REITs more than smaller REITs. Larger REITs can leverage much more than smaller REITs can as large REITs typically are more diversified, both geographically and by property type and reduces tenant concentration.

The larger REITs are also highly liquid, which is a big plus for institutional investors.

Across markets, the best-performing REITs are better capitalised, have more financing options, own better-quality assets and have less risk exposure.

The extent to which the 2 largest listed property funds, Redefine and Growthpoint are battling for Fountainhead’s R10bn portfolio perhaps indicate the extent to which size matter in REITs.

By: Mduduzi Ngwenya