Abstract
Listed real estate companies can be divided into two categories: real estate operating companies (REOCs) and real estate investment trusts (REITs). REOCs have been around for quite a while, whereas REITs are a somewhat new phenomenon in Europe, the main differences pertaining to permissible activities and taxation. This paper studies the relative differences of REOCs and REITs in terms of liquidity: Also asset returns, volatility and correlation to other equities are assessed. The liquidity tests performed reveal REITs to be significantly more liquid than REOCs, potentially due to restrictions regarding REIT ownership structure. Ceteris paribus, superior REIT liquidity implies REITs constitute a preferred investment vehicle.
Highlights
The value of global real estate assets reaches over 19,000 billion dollars, the dollar value of European real estate assets amounting to nearly 8,000 billion
The general European stock market (MSCI Europe) decreased by 2.72% annually, but the real estate investment trusts (REITs) did even worse by depreciating with 9.68% per year
The discrepancies are not of similar magnitude: the higher returns exhibited by REITs clearly more than match the respectively higher volatility
Summary
The value of global real estate assets reaches over 19,000 billion dollars, the dollar value of European real estate assets amounting to nearly 8,000 billion. To put the figures in a perspective, the value of the whole global stock market (listed, all industries) amounts to about 44,000 billion dollars. It follows that the value of all real estate assets, private and public combined, reaches almost 44% of the value of all listed stock market assets in the world (EPRA, 2010; Table 1). Total listed real estate assets, world Europe. Real estate constitutes an important share of the investment portfolio of any well-diversified investor.
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