Australian real estate has emerged as an important asset class for both local and international investors. As at December 2012, the total market value of commercial real estate stock in Australia was estimated to be A$681 billion (US$484 billion), according to the Australian Centre for Financial Studies. The indirect real estate market, represented by the listed A-REITs, was valued at A$92 billion (US$65 billion), representing more than 6 percent of the equity market by December 2013. Globally, Australia is home to the second-largest REIT market in the world, accounting for approximately 10 percent of total global REIT market capitalisation.

Although investment in indirect real estate is becoming increasingly popular among investors as an affordable and effective way to gain exposure to the underlying real estate markets, the true linkages between direct and indirect real estate remain a conundrum to both academics and practitioners. Here we investig