Activity Internationalisation in the Real Estate Market: Some Evidence on the Internationalisation of the Real Estate Involvements of Listed Firms Éamonn D’Arcy School of Real Estate and Planning, University of Reading Stephen Lee Cass Business School, City University
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Éamonn D’Arcy School of Real Estate and Planning, University of Reading Stephen Lee
Activity Internationalisation in the Real Estate Market: Some Evidence on the Internationalisation of the Real Estate Involvements of Listed Firms. Éamonn D’Arcy School of Real Estate and Planning, University of Reading Stephen Lee Cass Business School, City University. Introduction. - PowerPoint PPT Presentation
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Activity Internationalisation in the Real Estate Market: Some Evidence on the Internationalisation of the Real Estate Involvements of Listed Firms
Éamonn D’ArcySchool of Real Estate and Planning, University of Reading
Stephen LeeCass Business School, City University
Introduction
Real estate in common with many other business sectors has experienced significant levels of internationalisation in its market activities over the last decade. Real Estate Services, Investors Groups, Funds, Users
Listed real estate firms - evidence so far available of their activity internationalisation suggests that it has more been limited and highly sector specific as compared to other groups of market actors
Introduction
This research sets out to systematically examine the internationalisation of the real estate involvements of this group as a means of identifying the key drivers of this process in the listed real estate universe
Focus in presentation on the potential drivers of internationalisation and the stylised facts of the activity internationalisation of a range of key listed firms
Explaining Internationalisation
Transfer of intangible assets or capital across national boundaries Push
Market Saturation, New Entry New Technologies
Pull Client Following, Competitor Following Market Seeking Opportunities
Performance differences, timing, diversification
Explaining Internationalisation
Barriers Formal
Regulation Foreign ownership restrictions Controls on information and capital flows
Informal Language and culture Local Real Estate Cultures
Implications in terms of significant information costs and requirements (transactions costs)
Explaining Internationalisation
The OLI Paradigm Ownership Advantages – Characteristics of Intangible Assets
Locational Advantages – Which markets present opportunities – tradability of the activity concerned – host country market environment
Internalisation Advantages – What mode to use – direct, partnership, indirect
Investment/Development Activities
Return OpportunitiesSmall home market sizeDifferences in economic performanceRelative capital scarcity
Emerging marketsDemographicsMarket timing
Post – bubble, crash, re-pricing
Investment/Development Activities
Diversification International correlations Modern portfolio theory
The rationale behind international diversification is simply an extension of basic portfolio theory
Most assets are heavily influenced by their domestic economy
In an international setting fewer common factors, and greater divergence leads to lower correlations and thus enhanced diversification opportunities
Given that real estate is an non-exchange traded asset and more tied to underlying economic driving forces are there additional international diversification opportunities ?
Investment/Development Activities
Ownership Advantages Intangible assets
Proprietary methodologies (Know-how) Access to debt – ability to raise capital
Transactions costs Information costs and requirements
Regulation Political Risk, Economic Risk Currency risk and hedging requirements
Additional risk that currency movements add to the asset Transaction Exposure Translation Exposure Economic Exposure
Barriers Liquidity Issues – market size
Real estate is a relatively small investment market and the limited number of ‘liquid’ investment markets further exacerbates impacts resulting in a concentration of investment in the larger more liquid markets
Limits to diversification potential Common economic driving forces Many of the key office investment markets are major financial services
centres: Common tenants – linked to capital markets Common investors – linked to capital markets - Competition
The potential implication is limited economic diversification Local Real Estate Culture
Institutional differences in the structure of real estate markets Considerable differences in ‘the rules of the game’
Table 1 Activity Internationalisation of Selected European Listed Firms (Top 5 by Country)
Country REIT Sectors International Sectors and Countries
Belgium Cofinimmo Healthcare, Leisure, Office
Yes HealthcareFrance
Befimmo SCA Office Yes (Minor) OfficeLuxembourg
Warehouses De Pauw Commercial, Industrial, Office, Parking, Others
Yes Warehouse5 European Countries
Wereldhave Belgium Office, Retail Yes Office and Retail 5 European Countries and US
Intervest Offices Industrial No
France Unibail-Rodamco Office, Retail Yes Retail 12 European Countries