Currency movements had marginal impact to the World Property Market as compared to last year. Currency movements marginally impacted the size of the global real estate investment market by approximately +0.1% in US Dollars (USD), in contrast to the negative impact in 2018 (-2.6%). Asset value growth and transaction activity of already existing portfolios, newly identified portfolios and new developments in the market, such as new construction and sale and leaseback transactions, also contributed to the growth in market size.
United States weight has increased compared to the World Property Market. The relative weight of the United States within the MSCI Global Annual Property Index (Unfrozen; Weighting: Market Size) increased further in 2019.
China continues to be the fourth-largest market when compared to the World Property Market for the second consecutive year. China ranked as the fourth-largest national market, behind United States, Japan, United Kingdom for the second consecutive year having overtaken Germany in 2018.
MSCI began systematically estimating the size of professionally managed real estate investment markets in 2004.
These estimates are fundamental to the creation of the MSCI Global Annual Property Index (Unfrozen; Weighting: Market Size) and a range of other multinational indexes, and they provide insights into the coverage of MSCI’s direct property indexes.
This paper sets out the 2019 market size estimates and explains the main changes that occurred between 2018 and 2019.
The MSCI Global Annual Property Index (Unfrozen; Weighting: Market Size) weighs real estate investment returns across 25 countries. While MSCI’s national indexes for Japan and Korea are included in the MSCI Global Annual Property Index (Unfrozen; Weighting: Market Size), our market data for seven other Asian countries – China, Hong Kong, Indonesia, Malaysia, Singapore, Taiwan and Thailand – are excluded from that index.
In this report, all national market sizes are based on bottom-up, portfolio- specific estimates, and these are converted into US Dollars using the year-end currency conversion rate.
Estimating Market Sizes
MSCI captures a large amount of information on individual real estate investment portfolios around the world, which forms the foundation of our market information products (Global Intel) and Enterprise Analytics for direct real estate holdings at the asset level. By the end of 2019, the value of these directly measured real estate investment portfolios was $2.2 trillion. However, despite this high level of coverage, MSCI does not directly measure all portfolios in the market.
While MSCI’s data is useful for understanding how the market is changing, additional data sources are needed to build up definitive estimates of market size. MSCI does this by combining bottom-up, portfolio-specific in-house information with data obtained from the public domain, including pre-existing databases, annual and quarterly reports from companies and data from company websites. This approach aims to identify all direct real estate holdings in each country on a portfolio-by-portfolio basis, following the MSCI methodology, which seeks only to capture the value of professionally managed real estate owned for investment purposes.
Invested real estate stock is defined as property owned for the primary purpose of benefiting from investment returns, as distinct from owner-occupied and non- investment leased real estate. The owner-occupied part of the market comprises real estate that is both owned and occupied by private and public companies, real estate owned by governments and used for governmental purposes, and residential buildings owned by private homeowners. In addition, there are organizations that own and lease real estate to tenants but whose primary objective something other than generating an investment return.
These include social housing organizations and municipalities, which in some countries have substantial real estate portfolios (see Appendix 1 for more information about the methodology used).
MSCI uses the total estimated size of the professionally managed real estate stock owned for investment purposes in each market to reweigh national indexes that contribute to the generation of multinational indexes, including but not limited to the MSCI Global Annual Property Index (Unfrozen; Weighting: Market Size). For this purpose, all country-level market size estimates are converted to US Dollars at year- end currency conversion rates.
Due to differences in MSCI index coverage levels nationally, the indexes are reweighed to provide a more representative balance between markets in the multinational indexes to which they contribute. The market size estimates are used for reweighing the MSCI Global Annual Property Index (Unfrozen; Weighting: Market Size), the MSCI Nordic Annual Property Index (Unfrozen) and the MSCI Europe Annual Property Index (Unfrozen; Weighting: Market Size), as well as other regional indexes and bespoke or custom indexes.
The size of the professionally managed global real estate investment market increased by 7.8% from $8.9 trillion in 2018 to $9.6 trillion in 2019. The growth was higher as compared to 2018 when the market grew by 4.1%. Exhibit 1: Change in Global Market Size Estimate and for 5 largest countries, USD Billion.
United States continued to be the largest market, while Japan and United Kingdom remained at the second and third position respectively. China continued to be at the fourth position for the second year in a row while Germany was at the fifth position.
Longer Term Changes In Market Size
The relative weights of individual countries in the MSCI Global Annual Property Index (Unfrozen; Weighting: Market Size) have shifted over time, as shown in Exhibit 2. These changes have resulted from a combination of asset value growth, currency impact and a residual component. The weight of the United States market continued to increase year on year, going from 31.0% in 2009 to 41.3% in 2019. Germany, France and Canada continued to be around 7.0%, 5.3% and 4.4% respectively. The weight of the United Kingdom was around 9.0% as compared to 2014 when it was over 11.0%. There was a decline in Japan from 15.3% in 2009 to 10.6% in 2019.
Reference:Annual Update on the Size of the Professionally Managed Global Real Estate Investment Market, Bert Teuben, Razia Neshat , June 2020
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