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Multi-National Real Estate Income Risk Analysis

Income is the principal foundation of real estate investment returns. For most markets and over the longer term, the vast majority of the real estate return comes through income rather than appreciation. The income generating nature of real estate has become even more relevant in an era of ultra-low interest rates, and in the context of the search for yield. Given the importance of income to investors, increasing attention is being placed on the monitoring of real estate cashflows in order to drive stronger performance and to reduce risks. It is in this context that MSCI has produced the first set of multi-national analyses drawn from its IPD Rental information Service (IRIS) income risk product, providing powerful insights on four main dimensions of income: lease Term Risk, Market Risk, Credit Risk and Concentration Risk. This analysis is based on a dataset of 340,000 tenancies in 22,000 properties and 422 portfolios across ten countries. Results reveal a huge variation in outcomes across markets, cities and portfolios, challenging existing concepts of “core” and supporting a more analytical approach to building portfolios  The availability of the IRIS dataset greatly increases the ability of managers to systematically understand the various dimensions of income risk and return. These insights are of profound importance to investment strategists, acquisition teams through the due diligence process, portfolio managers and asset managers as they seek to build and position portfolios across markets and through investment cycles.