In this issue, 17(2), we present a set of papers dealing with a number of pertinent and topical issues for real estate as an asset class. Here, we move from the fundamental issue of valuation to more specialised topics of healthcare real estate, housing consumption over the life cycle, ESG, student housing and then to real estate education. These issues are current and relevant, and the selected research papers have applied a variety of methods to address the research questions.
We start with a fundamental question around understanding how business cycle dynamics affect real estate value. While a lot has been learnt over the years about this topic, changing market structure, nature of business cycles and intricate ways real estate has become connected with the wider national and world economies call for adjusting the way we value real estate. The paper by d’Amato, Renigier Bilozor and Bambagioni proposes an innovative approach to direct capitalisation that may be useful in the determination of a robust opinion of value. They show that determining the exit value using their proposed cyclical capitalisation could lead to a practical and sensible assessment. Moreover, they also note that it can work as an effective risk analysis method, potentially providing stable and reliable valuations for income-producing properties. This is quite useful in the changing world of real estate as valuation issues become quite important for evaluating the performance of specialised real estate, such as healthcare REITs, student housing, etc.
The demand for healthcare facilities has been rising rapidly in recent years. We have seen demands for a wide range of bespoke properties, from specialist and non-specialist medical facilities to nursing homes to off-site care facilities. An ageing population across most countries due to low mortality rate at young age and life expectancies boosted by an increasing level of public awareness of health issues, medical and technological innovations, changes in attitude toward nutrition and healthcare has made the sector very prominent, and it will continue to see a steady demand for a variety of healthcare space and services. As a result, healthcare companies (both public and private) will have to deal with issues that cut across real estate, healthcare and technology sectors and pose a unique set of challenges, calling for a sound understanding of both healthcare and property sector dynamics. These challenges are somewhat different in terms of patterns, dynamics and implications from those faced by other traditional real estate sectors, e.g. office, retail, residential, hospitality or industrial properties. Property specifications, location choices, type and management of the tenants tend to be quite different compared to those for other property sectors.
The paper by Newell and Marzuki delves into issues related to assessing the risk-adjusted performance, portfolio diversification benefits and performance dynamics of French healthcare property. The analysis is focused on a French property portfolio and mixed-asset portfolio over 1999–2020. The authors note that French healthcare property seems to have different performance dynamics compared to that of other property sectors such as office, retail and industrial properties. They also demonstrate that the performance of French healthcare property differs from those in the UK and Australia, which possibly reflects institutional differences in terms of healthcare provision and property sector dynamics across countries. This is particularly important, as, with the rising level of ageing population and demand for social infrastructure, institutional investors’ interest is also growing in healthcare property as an important addition to their overall portfolio.
Continuing with the theme of healthcare, the next paper by Wiejak-Roy and Hunter deals with issues for replacing retail properties with healthcare across town centres. Such conversion is needed due to inadequate healthcare facilities in the face of rising healthcare demand, and also, there has been a steady decline in demand for traditional retail real estate due to the emergence of online retail platforms and changes in consumer behaviour in recent years. As a result, many town centres in England exhibit high retail property vacancies and require regeneration. This is also evident in many other countries. The authors conducted semi-structured interviews with selected key stakeholders to understand their perspectives on opportunities and limitations for retail-to-healthcare conversions. The responses highlight the need of facilities for integrated healthcare provision that can co-locate with other complementary services. The participants seem to prefer adaptation of existing buildings as long as those are fit for the purpose. However, the interviewees also note that obtaining agreements from other stakeholders and ensuring stability in the availability of funding are important for the success. A deeper understanding of regeneration strategies to incorporate healthcare is important for the sustainability of UK town centres, which have long been functioning as focal points for economic and social interactions.
We then turn to patterns of housing consumption across various stages of the life cycle. Using two datasets, the English Housing Survey (EHS) and the Living Costs and Food Survey (LCFS), Fernandez analyses consumption responses to house price changes across age and tenure groups. The author finds that while older homeowners seem to exploit the housing wealth effect by increasing their level of consumption when facing house price appreciation, middle-aged individuals, who may have a significant level of outstanding mortgages, tend to reduce their level of consumption when facing house price inflation. Interestingly, the author also finds that the youngest age group increases consumption when house price rises, but it is to a lesser degree compared to that of the oldest group. In a world of ageing population and changing perspectives towards housing by various age groups at different stages of life cycle, the housing wealth effect is likely to play out differently from what has been documented by past studies.
Morri, Dippieri and Colantoni look into the dynamic relationship between ESG scores and REITS returns, specifically to understand how ESG considerations impact financial performance across various periods of economic activities. Using a reasonably large sample of 175 European Equity REITs, they incorporate numerical ESG scores within the Fama-French model specification. They test both random and fixed effects methods for robust analysis. Their approach combines individual REIT data and the High ESG Scores Minus Low ESG Scores (HESGL) factors to test the hypotheses. Their findings indicate the numerical ESG score displaying a negative impact in later periods and the HESGL factor demonstrating a positive effect during prosperous times, which seems to lose statistical significance during periods of economic and financial crises. This area of research is likely to see more works in the near future as ESG benchmarking, robust measurement of ESG factors and implications for financial performance are becoming crucial aspects of REIT business operations.
von Wittenhorst zu Sonsfeld and Beusker look into another niche sector, student housing. This is an important area of growth and innovation. Their focus is on students’ tastes and preferences. The authors conducted an extensive survey across 21 publicly funded dormitories in Aachen (Germany) in 2022 that led to more than 1,200 responses for their analysis. Their findings offer interesting insights into the needs and preferences of students who come from various financial backgrounds. The insights cover preferences for the location of the dormitory, the outdoor area, the shared spaces, the sanitary facilities (bathroom and kitchen) and the students’ private rooms. With the increasing level of interest from investors in the student housing sector, understanding students’ needs and preferences is quite crucial for developing effective solutions.
Finally, K’Akumu reviews real estate as a discipline compared to others such as accounting, finance and marketing. The study addresses a fundamental question: What is the cause of “search for a discipline” in real estate education? The study used qualitative document analysis to review primary documents and found how it impacted negatively on the teaching of real estate and how a real estate scholar needed to think of disciplinary alignment while teaching real estate.
Real estate as a subject area is inherently multidisciplinary. We apply principles, tools and approaches from a number of relevant disciplines (e.g. economics, geography and other social sciences) to understand the issues and address the research questions. That adds richness and robustness to the analysis we do and is the strength of our subject area. Regardless of disciplinary preferences, it is important to bring interdisciplinarity to research in real estate for better understanding of complex research issues and drawing robust inferences.
I hope you enjoy reading the new thoughts and analysis presented in this issue.
