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Measuring European real estate investment performance: A comparison of different approaches

Devaney, S., (2013) Measuring European real estate investment performance: A comparison of different approaches. Working Papers in Real Estate & Planning. 10/13. Working Paper. University of Reading, Reading. pp23.

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Abstract/Summary

The performance of real estate investment markets is difficult to monitor because the constituent assets are heterogeneous, are traded infrequently and do not trade through a central exchange in which prices can be observed. To address this, appraisal based indices have been developed that use the records of owners for whom buildings are regularly re-valued. These indices provide a practical solution to the measurement problem, but have been criticised for understating volatility and not capturing market turning points in a timely manner. This paper evaluates alternative ‘Transaction Linked Indices’ that are estimated using an extension of the hedonic method for index construction and with Investment Property Databank data. The two types of indices are compared over Q4 2001 to Q4 2012 in order to examine whether movements in these indices are consistent. The Transaction Linked Indices show stronger growth and sharper declines than their appraisal based counterparts over the course of the cycle in different European markets and they are typically two to four times more volatile. However, they have some limitations; for instance, only country level indicators can be published in many cases owing to low trading volumes in the period studied.

Item Type:Report (Working Paper)
Divisions:Henley Business School > Real Estate and Planning
ID Code:33573
Uncontrolled Keywords:Transaction indices; Assessed value method; Appraisal indices; Appraisal smoothing; Real estate volatility; European real estate investment
Publisher:University of Reading
Publisher Statement:The copyright of each Working Paper remains with the author. If you wish to quote from or cite any Paper please contact the appropriate author. In some cases a more recent version of the paper may have been published elsewhere.

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