U.S. Investors Use Indices for Real Estate Investment Insight

A variety of regularly published indices are used by investors for bench-marking, assessing tolerance for risk, and other investment measurement. When considering an investment in real estate for example, there are two indices that, based on actual property transactions, measure the average price appreciation for U.S. real estate; at the property level.

Both the Moody’s/RCA Commercial Property Price Index (CPPI) and the CoStar Commercial Repeat-Sales Index (CCRSI) are available for the aggregate U.S. commercial property market, as well as for important and influential market segments. Both index series are based on a version of the repeat-transactions methodology, popularized by Case and Shiller.

The CPPI and CCRSI measure the implied monthly change in market value for an investment property that has had “normal” levels of both economic depreciation and capital reinvestment. They do not measure income or total returns at the property level, nor do they measure returns to investors on property investments in which any debt is used.

Both the CPPI and the CCRSI are published monthly rather than quarterly, and both are based on actual transaction prices rather than appraisals. This means that both indices produce significantly more accurate measurements of movements in property values over time, when compared to appraisal-based indices, whether at the property level (such as the NCREIF Property Index) or at the fund level (such as the NCREIF ODCE Index, the PREA|IPD U.S. Quarterly Property Fund Index, or the Cambridge Associates Real Estate Index). In addition, both cover a significant amount of the commercial property market in the United States.

The U.S. housing market as a whole has improved dramatically over the past several years. In mid-2014, property prices vaulted to their highest level in more than five years, adding to signs of an improving real estate market recovery in the United States. With regards to residential real estate specifically, the median price of a new home increased a record 11.2 per cent in August 2014, to $256,000; the highest level since March 2007. When compared to August of 2013, the median sales price jumped 17 per cent, the largest rise since December 2004.

UK Real Estate Investment Will Grow to £20 Billion by 2019

According to analysts’ forecasts, based on a survey of investors’ five-year views, investment in the UK’s real estate sector will grow to £20 billion (€25.5 billion); by 2019. Why the sudden interest in investment? Some say this 82% increase can be attributed to alternative investments becoming much more appealing and acceptable, to institutional investors.

The survey found that 90% of investors intend to increase their exposure to real estate investments, over the next five years. By how much? On average, respondents said they were looking to increase their allocation to alternative investments by 9%, over the same 5 year period.

“As we move towards 2019 and beyond, with what indicates to be an ever-increasing investor appetite, it’s likely many of these assets will break out of the alternatives bracket and become a more mainstream choice for investors.” – Mr. Chris Ireland, UK Chairman & Lead Director of Capital Markets at JLL

According to a report from Real Capital Analytics, Europe remains a major draw for North American and Asian capital. Canadian investors and their American counterparts continue to target European property for investment. In the United Kingdom alone, the U.S. dollar has dominated investment this year, with an estimated €8.3 billion invested in the first nine months of 2014. On the other hand, Asian investment in European property is still in its infancy. These figures demonstrate international investors’ commitment to UK real estate.

The higher investment returns, relative to conventional real estate investments, as well as greater expertise in investing in alternatives; will also drive investment volumes in the sector up. Sometimes referred to as “the beginning and end of adult life” (student housing and retirement homes), are regarded as potential growth sectors. Both of these investments, which have already attracted significant institutional capital, may very soon find themselves reclassified as mainstream investments.

Recent reports suggest that key points of interest for investors investing in real estate will be student housing, expected to increase 70%, as well as hotels and hospitality; with a 69% increase in investment.