The performance of property developments of institutional investors: An empirical analysis and European comparison

Abstract

Purpose

Only a small amount of research is available as yet on the performance of property developments. This article seeks to analyse the performance of property developments in institutional property investors' portfolios over four European countries – France, Germany, Sweden, and the UK – based on property level data submitted to the IPD property databank. The study also aims to consider total returns of standing investments as a benchmark for property developments.

Design/methodology/approach

Performance data over the period 1998 to 2002 are analysed by means of a multi‐factor analysis of variance where the factors are the country, property use type, year of completion, duration and capital value groups of property developments. As property developments usually carry higher risks, one would expect total returns of developments to be higher than for standing investments. By comparing weighted total returns of property developments with those of standing investments, support was found for this assumption in most cases.

Findings

Only in Germany did property developments perform even worse than the standing investments. Country and capital value were found to be the key performance drivers for property developments in the four countries. Interestingly, property use type does not yield a significant impact on performance.

Originality/value

As a first contribution, the findings of the study are supposed to be valuable for European institutional property investors in their asset allocation decision processes.

Citation

Kurzrock, B. and Roth, M. (2006), "The performance of property developments of institutional investors: An empirical analysis and European comparison", Journal of Property Investment & Finance, Vol. 24 No. 1, pp. 27-48. https://doi.org/10.1108/14635780610642962