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The performance gap in UK property returns

The performance gap in UK property returns Purpose – When one talks of the return performance one typically refers to an average buy‐and‐hold return, also known as time‐weighted return. However, the returns of investors can be quite different. Investor returns are determined not only by the returns on the underlying assets but also by the timing and magnitude of their capital flows into and out of these assets. To account for the annual‐to‐annual variation in assets under management, a dollar‐weighted return has to be calculated. The difference between time‐weighted returns and dollar‐weighted returns is known as the performance gap. The purpose of this paper will be to investigate this in the UK property market. Design/methodology/approach – Using an approach similar to that of Dichev the authors examine the performance gap in the UK direct property market using historical return data for 45 market‐segments over the time period 1981‐2009. Findings – The results show that the performance gap was negative, i.e. investor returns were greater than asset returns. That is, UK direct property investors have shown greater returns than their underlying investments. This implies that estimates of the performance of the UK property market based on property returns do not reflect the experience of investors as a group. Originality/value – This study provides the first evidence of the performance gap in the UK direct real estate market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of European Real Estate Research Emerald Publishing

The performance gap in UK property returns

Stephen Lee
Journal of European Real Estate Research , Volume 5 (2): 14 – Aug 3, 2012
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Publisher
Emerald Publishing
Copyright
Copyright © 2012 Emerald Group Publishing Limited. All rights reserved.
ISSN
1753-9269
DOI
10.1108/17539261211250708
Publisher site
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Abstract

Purpose – When one talks of the return performance one typically refers to an average buy‐and‐hold return, also known as time‐weighted return. However, the returns of investors can be quite different. Investor returns are determined not only by the returns on the underlying assets but also by the timing and magnitude of their capital flows into and out of these assets. To account for the annual‐to‐annual variation in assets under management, a dollar‐weighted return has to be calculated. The difference between time‐weighted returns and dollar‐weighted returns is known as the performance gap. The purpose of this paper will be to investigate this in the UK property market. Design/methodology/approach – Using an approach similar to that of Dichev the authors examine the performance gap in the UK direct property market using historical return data for 45 market‐segments over the time period 1981‐2009. Findings – The results show that the performance gap was negative, i.e. investor returns were greater than asset returns. That is, UK direct property investors have shown greater returns than their underlying investments. This implies that estimates of the performance of the UK property market based on property returns do not reflect the experience of investors as a group. Originality/value – This study provides the first evidence of the performance gap in the UK direct real estate market.

Journal

Journal of European Real Estate Research – Emerald Publishing

Published: Aug 3, 2012

Keywords: Property returns; Investors returns; Performance gap; Performance management; Property; Real estate; United Kingdom

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