Real Estate Services and a Globalized Asset Class

By Ehrenberg, Maureen; Mallen, Steve | Real Estate Issues, Fall 2003 | Go to article overview
Save to active project

Real Estate Services and a Globalized Asset Class


Ehrenberg, Maureen, Mallen, Steve, Real Estate Issues


"It was the best of times, it was the worst of times"
(Charles Dickens, A Tale of Two Cities, 1859)

The last 20 years of the 20th Century will go down as a period when the international real estate market achieved two things: maturity and global spread. Like a wayward teenager, real estate learned from its mistakes, went to college and became better educated and then demonstrated more prudence and caution than previously. At the same time, with international commerce, trade liberalization, and globalized capital came a passport and escalating air miles.

In the early years of the new century, real estate, on a risk-adjusted basis, looks like a preferred investment asset class throughout much of the world. Cycles come and go, but supply and demand are, for the most part, relatively well balanced in historic terms in most countries. Prices are shifting incrementally rather than dramatically and the volume and profile of capital and debt entering the sector is far better regulated and subject to far more due diligence than before. With an aging global demographic and volatility in other asset classes, real estate has become a target for both venture capital and annuity, bond-style investors seeking retirement profile income. "How are we going to fund our retirement?" is Item One on the sociopolitical agenda in the Western world with real estate right there alongside in the action column. Expectations are high.

[GRAPHIC OMITTED]

By way of illustration, the Australian Government has introduced compulsory pension contributions for all employees in defense against a poverty-stricken retired population in the medium to long term. The net inflow of capital into Australian superannuation (pension) funds has increased at an unprecedented rate in consequence and, by volume, is set to overtake the value of the nation's entire fixed asset base. Asset and geographical diversification are now not only a certainty but mission-critical from a risk perspective. Real estate will figure prominently as a result of its ability to offer stabilized, annuity style returns over time, thereby matching policy liabilities against capital and fund liquidity requirements. It is only a matter of time before the other developed nations of the world follow the same route. Global capital flows in real estate will escalate dramatically in the next 20 years. The public and private REITS in the United States currently represent dramatically different options for investors and yet both have thrived in recent years with high expectation for both.

Capital alone however, does not a market make. The intensity with which qualifying investment opportunities are being bid up by investors anxious to place capital or take advantage of a cost of finance to income arbitrage environment that has not been seen in more than a generation, means that cap rates are being driven down while the underlying demand for the commodity, in this case real estate, is weakening. This is an imperfect market in any textbook. There is perhaps still more maturity required for this very new market type predicament, which has created a fundamental disconnect in many real estate markets around the world.

The stakes are high. The combined value of the developed economies' residential and commercial property markets is greater than the combined value of all the international equity and bond markets added together. In many countries, imperfections in the real estate sector are actually directly impacting upon that country's largest fixed asset base. Real estate really is big business. Indeed, its fixed capital position and its investment expectation profile arguably make it the biggest business of all moving forward. It is also worth noting that around 30% of the developed world's commercial real estate by value (some $4.7 trillion) is located in the United States.

[GRAPHIC OMITTED]

So, what of demand? The equity markets are inching back upwards on the back of gradually improving corporate profitability and all economic forecasts point towards better economic performance throughout the world in the middle years of the decade.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Real Estate Services and a Globalized Asset Class
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?