Have big-ticket properties performed better than lower-value properties?

Posted On Wednesday, 16 August 2017 23:06 Published by
Rate this item
(0 votes)

Some real estate investors assume that higher-value (big ticket) real estate assets outperform lower-value assets, partly because there are fewer of them and they are harder to buy.

But is this just speculation? Using MSCI global real estate dataset, we find evidence that higher-value assets have been more likely to outperform other assets in the same country and sector than lower-priced assets.

One of the defining characteristics of directly owned real estate is its lumpy and indivisible nature. Real estate assets can range in size and value from small warehouses worth a few thousand dollars to downtown office towers worth billions. But buyers are limited by size and capacity constraints. For direct investments, smaller investors are generally limited to lower-value assets (though they can access higher-value properties via pooled vehicles), while larger investors typically prefer larger properties for efficiency purposes. The resulting stratification of investment markets could lead to differences in performance within the broader real-estate market.

Since 1999, for example, U.S. office assets worth more than USD 200 million have outperformed smaller U.S. office assets in every year except 2016.1

LARGE U.S. OFFICE ASSETS HAVE OUTPERFORMED SMALLER OFFICE ASSETS IN 17 OF THE PAST 18 YEARS

Source: MSCI – Global Intel

But has there been a systematic difference in performance across capital value bands at a global level? To answer this question, we used 487,152 annual return observations from 87,723 assets across 24 national markets over a five-year period in the retail, office and industrial sectors. The analysis controls for difference in location and property type by comparing assets only within in the same country and sector.

The exhibit below shows that higher-value assets have historically had a higher chance than lower-value assets of outperforming other assets in the same country and sector. For instance, a fully owned asset in the top capital value quarter for its sector and country had a 53.2% chance of outperforming its country and sector peers overall, compared with 43.5% for a fully owned asset in the bottom quarter.

In addition, part ownership slightly reduced the chances of outperformance, though this effect appeared to be relatively small compared with the impact of asset size. To illustrate, a part-owned asset in the top capital value quarter still had a higher chance of outperforming than a fully owned asset in the first or second quarters.

HIGH-VALUE ASSETS WERE MORE LIKELY TO OUTPERFORM LOW-VALUE IN THE SAME COUNTRY AND SECTOR

Source: MSCI

Last modified on Thursday, 17 August 2017 09:01

Most Popular

Wide-spread implications for South Africa’s real estate market following COVID-19

May 05, 2020
JLL_Logo
JLL, one of the world’s leading real estate investment and advisory firms, today released…

Deeds office reopen their doors to the public

May 09, 2020
Carlize Knoesen
The Department Agriculture, Land Reform and Rural Development has announced the reopening…

Sectional Title Trustees and Homeowners Association directors face COVID-19 liability

May 22, 2020
Marina_Constas_BM_Law
The Covid-19 pandemic and South Africa’s lockdown regulations are impacting all aspects…

SA REIT appoints Joanne Solomon as its first CEO

May 05, 2020
Joanne Solomon new CEO SA REIT Association
With her wealth of financial and property sector experience, Joanne Solomon has been…

2020 Commercial Property Outlook –Why Property Price/Valuations Indices don’t tell the full story of market weakness during a deep recession

May 09, 2020
John LoosFNB
In a downturn, Property Market Values can deviate dramatically from the market…

Please publish modules in offcanvas position.