Investors' increasing allocation to international real estate is raising questions about the future of listed property companies. These are a popular choice with real estate investors in their home markets because they tend to be less volatile and more profitable than comparable asset classes. Most, though, tend not to invest outside their own countries. "Listed property companies are an excellent route to invest in local markets – they know the correct prices. And the market is comfortable with that specialization, because if you invest outside your local market, the risk will be bigger," says Philippe Tannenbaum, director of investment banking research at Eurohypo Real Estate. "European property companies that have tried to invest outside of their borders have generally not been very successful until now."
Cross-border investment in real estate is growing, however. "Past experience has shown that individual national real estate markets can be subject to price erosion over a period of several years while real estate in neighbouring countries performs well," says UBS's Christian Unternaehrer. Neil Turner, head of international investment and research at Schroder Property Investment Management, adds: "The dispersions of property returns is greater between global property markets than between the property sectors within a country.