As real estate continues to mature as an asset class, an increasing number of investors are expanding the geographical scope of their portfolios. The benefits of international diversification are numerous, according to Chris Miers, senior research consultant on the real assets research team at NEPC, who recently participated in a video interview with Institutional Real Estate, Inc., parent company of Real Assets Adviser.
“By having a global investment portfolio, you are able to capture a larger universe, and that universe is growing faster,” he says.
Miers explained diversification can offer investors cyclicality, which can benefit from markets rising and falling into different magnitudes at different times. While this happens regularly, in the past this was particularly advantageous during the global financial crisis, when Asian markets fell after markets in the United States and Europe. Building a global real estate portfolio also offers investors more opportunities for liquidity, according to Miers. Out of the top 20 markets measured in Real Capital Analytics’ (RCA) liquidity index, 13 are located outside the United States.
“So investors who have an international allocation to real estate can benefit from greater liquidity possibly when they need it the most,” he says.
According to a recent RCA analysis of the most liquid markets in Europe prior to the outbreak of COVID-19, “structurally more liquid markets outperformed during the last global downturn and were the first to regain prior pricing when the markets recovered.”
Miers also notes that investing in real estate globally presents opportunities to achieve alpha. Different property types mature and gain investor acceptance at different times throughout the various markets, and diversified investors can capitalize on these trends early.
“When investors have a global perspective, they might be able to benefit when an asset class is core in the U.S. but niche somewhere else,” says Miers. “They can benefit by investing in that early or investing in certain themes that they see changing.”
To take advantage of these benefits, Miers cautions that investors need to consider a variety of factors. To learn more about those factors, watch Miers’ video interview on the Institutional Real Estate Inc. website at this link: https://bit.ly/2SEA7rx
Kali Persall is a reporter at Institutional Real Estate, Inc. and editor of iREOC Connect.