The development and initial performance analysis of REITs in Ireland

Muhammad Jufri Marzuki, Graeme Newell, W. Stanley McGreal

Research output: Contribution to journalArticle

Abstract

Purpose: The inception of REITs in Ireland in 2013 presented an additional property investment opportunity to Ireland’s commercial property investment landscape. Importantly, the Irish REIT market is an institutional apparatus with an objective to rejuvenate Ireland’s commercial property market. The purpose of this paper is to provide an empirical validation of the performance of Irish REITs over the period March 2015 to February 2019 across several investment measures such as risk-adjusted returns and diversification benefits. Design/methodology/approach: Using monthly total returns in local currency, the risk-adjusted performance and portfolio diversification attributes of Irish REITs are assessed. The mean-variance framework is utilised to assess the potential added-value benefits of Irish REITs in a mixed-asset portfolio. Findings: Irish REITs delivered the strongest average annual return performance, lower relative volatility vs the stock market and competitive overall risk-adjusted performance. The results affirm the characteristic of Irish REITs as a total return-focussed income-driven property investment asset class. The optimal asset allocation analysis shows that Irish REITs are an important ingredient in a mixed-asset investment framework, as their allocation could be scaled effectively across the portfolio risk-return spectrum. Practical implications: Irish REITs are an emerging investment opportunity for investors seeking exposure in the strongly performing property market in Ireland in the post-Global Financial Crisis period. They are also regarded as an effective alternative conduit to private investment routes (i.e. direct property and non-listed property funds), with the added advantage of being more liquid and versatile than their private property investment counterparts. Importantly, Irish REITs fulfilled the purpose for which they were originally designed. The promising initial performance observed in this paper gives a useful context to what the future might hold for Irish REITs, given the strong interest for commercial property assets in Ireland from both local and cross-border property investors. Originality/value: This paper is the first empirical research aimed at providing an initial empirical performance validation of Irish REITs as an effective route to commercial property exposure in Ireland. This research enables empirically validated, more informed and practical property investment decision making regarding the strategic role of Irish REITs in a portfolio.

LanguageEnglish
JournalJournal of Property Investment & Finance
Early online date8 Nov 2019
DOIs
Publication statusE-pub ahead of print - 8 Nov 2019

Fingerprint

Ireland
Real estate investment trusts
Performance analysis
Property investment
Assets
Investment opportunities
Investors
Risk-adjusted performance
Property market
Design methodology
Investment decision-making
Risk-adjusted returns
Income
Empirical research
Portfolio diversification
Added value
Risk-return
Portfolio risk
Optimal asset allocation
Global financial crisis

Keywords

  • Asset allocation
  • Commercial property
  • Ireland
  • NAMA
  • Portfolio diversification
  • REITs
  • Risk-adjusted returns

Cite this

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title = "The development and initial performance analysis of REITs in Ireland",
abstract = "Purpose: The inception of REITs in Ireland in 2013 presented an additional property investment opportunity to Ireland’s commercial property investment landscape. Importantly, the Irish REIT market is an institutional apparatus with an objective to rejuvenate Ireland’s commercial property market. The purpose of this paper is to provide an empirical validation of the performance of Irish REITs over the period March 2015 to February 2019 across several investment measures such as risk-adjusted returns and diversification benefits. Design/methodology/approach: Using monthly total returns in local currency, the risk-adjusted performance and portfolio diversification attributes of Irish REITs are assessed. The mean-variance framework is utilised to assess the potential added-value benefits of Irish REITs in a mixed-asset portfolio. Findings: Irish REITs delivered the strongest average annual return performance, lower relative volatility vs the stock market and competitive overall risk-adjusted performance. The results affirm the characteristic of Irish REITs as a total return-focussed income-driven property investment asset class. The optimal asset allocation analysis shows that Irish REITs are an important ingredient in a mixed-asset investment framework, as their allocation could be scaled effectively across the portfolio risk-return spectrum. Practical implications: Irish REITs are an emerging investment opportunity for investors seeking exposure in the strongly performing property market in Ireland in the post-Global Financial Crisis period. They are also regarded as an effective alternative conduit to private investment routes (i.e. direct property and non-listed property funds), with the added advantage of being more liquid and versatile than their private property investment counterparts. Importantly, Irish REITs fulfilled the purpose for which they were originally designed. The promising initial performance observed in this paper gives a useful context to what the future might hold for Irish REITs, given the strong interest for commercial property assets in Ireland from both local and cross-border property investors. Originality/value: This paper is the first empirical research aimed at providing an initial empirical performance validation of Irish REITs as an effective route to commercial property exposure in Ireland. This research enables empirically validated, more informed and practical property investment decision making regarding the strategic role of Irish REITs in a portfolio.",
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The development and initial performance analysis of REITs in Ireland. / Marzuki, Muhammad Jufri; Newell, Graeme; McGreal, W. Stanley.

In: Journal of Property Investment & Finance, 08.11.2019.

Research output: Contribution to journalArticle

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AU - Newell, Graeme

AU - McGreal, W. Stanley

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