Commercial Real Estate Return Performance : A Cross-Country Analysis

This paper investigates the return performance of publicly traded real estate companies. The analysis spans the 1984 to 1999 time period and includes return data on over 600 companies in 28 countries. The return data reveal a substantial amount of variation in mean real estate returns and standard deviations across countries. Moreover, standard Treynor ratios, which scale country excess returns by the estimated Beta on the world wealth portfolio, also reveal substantial variation across countries in excess real estate returns per unit of systematic risk. However, when we estimate Jensen's alphas using both single and multifactor specifications, we detect little evidence of abnormal, risk-adjusted returns at the country level. We do, however, find evidence of a strong world-wide factor in international real estate returns. Furthermore, even after controlling for the effects of world-wide systematic risk, an orthogonalized country-specific factor is highly significant. This suggests that real estate securities may provide international diversification opportunities