European real estate valuations: understanding and interpreting results

‘European real estate valuations: understanding and interpreting results’ is the latest INREV short paper released today.

As with other private markets, non-listed real estate suffers from lag in valuation adjustments relative to other asset classes. Given the relative size, maturity and market structure, there is no reason why the reported volatility of UK real estate should be markedly different to that of Germany or France. Yet, this is not the case in practice, and the differences are stark, especially in periods of low liquidity.

This paper explores factual evidence and relevant data to raise awareness of the underlying causes of differences in the degree of valuation smoothing across the European non-listed real estate market, with a focus on Germany and the UK.

• Findings reveal that real estate valuations are smoothed, the extent of smoothing varies over time and different markets show different levels of volatility. Combining external and internal valuations likely enhances serial correlation and therefore smoothing.
• Local valuations for local clients and those undertaken by international valuers for mostly non-local clients deliver different results, most notably pronounced in Germany. INREV Asset Level Index provides a unique illustration of this two-speed valuation market.
• Neither Anglo-Saxon nor German valuation application and culture is right or wrong. Understanding these differences and pitfalls helps to explain some geographical differences in the speed of correction in today’s market.

Download the paper below.