Global real estate markets showing progress in levels of transparency: JLL / LaSalle
Two-thirds of real estate markets globally have shown progress in levels of transparency over the past two years, according to JLL and LaSalle Investment Management’s 2016 Global Real Estate Transparency Index (GRETI). The 10 countries identified as ‘Highly Transparent’ by GRETI account for 75 per cent of global investment into commercial real estate, highlighting the extent to which transparency drives real estate investment decisions.
A number of key factors are driving this progress and frame the broader issues raised by both high and low transparency:
- Capital allocations to real estate are growing. JLL forecasts that within the next decade in excess of US$1 trillion will be targeting the sector, compared to US$700 billion now. This growth means investors are demanding further improvements in real estate transparency, expecting standards in real estate to be on a par with other asset classes.
- There is a growing recognition that transparent real estate practices play a significant role in capital formation, municipal finance, and as a foundation to improve the quality of life in many communities. This foundation includes security of property ownership, safe housing and workplaces and the ability to trust agents to act honestly and professionally.
- Technology is both a driver of the digitization of all kinds of real estate data and also an enabler in disseminating and analyzing this data; improvements in data capture techniques are allowing a more granular and timely assessment of real estate markets.
Jeremy Kelly, director, Global Research Programmes at JLL and main author of the report commented: “These results are encouraging as they highlight the steady advances the global real estate industry is making. Improvements are down to a number of factors: initiatives to deepen the availability and quality of market data and performance benchmarking, the enactment of new legislation in several countries, the introduction of higher ethical standards, and the wider adoption of ‘green building’ regulations and tools.”
- Canada consolidates its ranking as third by improving performance measurement indices.
- Canada (3rd) has grown even more transparent in terms of investment performance transparency related to privately-held fund performance. While still in consultative stage, the IPD Canada Quarterly Property Fund Index has gone from its initial launch just a few years ago to become a more widely recognized industry benchmark in 2016. The Index is reasonably well-positioned to see progressively more widespread usage and adoption as a benchmark, as Index participants grow their assets under management, and as potential new funds join the Index over time.
- The Anglosphere continues to dominate the ‘Highly Transparent’ group – the United Kingdom (1st), Australia (2nd), Canada (3rd) and the United States (4th) hold the top positions. These traditional standard-bearers are taking real estate transparency to a new level; making improvements that go beyond other transparent markets, particularly in the granularity, quality, frequency and geographical spread of performance measurement, valuations and market fundamentals data, which now also extend to niche property sectors.
- Several ‘Highly Transparent’ countries, including Canada, impose obligations on real estate agents to perform anti-money laundering (AML) checks to verify the identity of their clients and any underlying beneficial owners.
“The wider recognition of IPD’s Property Fund Index has helped put Canada on par with countries like the U.S. and the U.K., who have had open-end fund indices for several years,” said Chris Langstaff, senior vice president, Research & Strategy, Canada LaSalle Investment Management. “Index participants can also measure their fund’s performance over the longer term, as benchmark performance history back to 2005 is available to Index participants, improving transparency related to data availability. Canada’s regulatory and legal frameworks and transaction processes, as they relate to transparency, also remain among the world’s strongest.”
The future of real estate transparency
Jacques Gordon, LaSalle Investment Management’s Global Head of Research and Strategy, commented: “Our index shows steady advances which are a result of both industry and government efforts. That said there are too many examples of opaque and corrupt practices, poor corporate governance and failures in regulatory enforcement that are resulting in serious consequences for society, business activity and for investment. Investors and tenants will bypass countries unable to address these shortcomings, and will gravitate instead to more transparent markets.”
The report highlights a number of factors which will influence real estate transparency in the next several years:
- Revelations of the Panama Papers in early 2016 have led to mounting pressures for greater real estate transparency and put the fight against corruption decisively on the international political agenda. Beneficial ownership disclosure and anti-money laundering procedures will be embraced more widely and rigorously; we expect to see material progress in the coming years by many countries in their drive for greater transparency in corporate and real estate ownership.
- As new data capture techniques get adopted, the pressure mounts for real estate to raise the bar and achieve even higher levels of transparency. JLL expects to see the rise of a new ‘Hyper-Transparent’ category in future years, where data feeds from sensors help inform owners and tenants about how buildings are used and how they perform. The mounting intolerance of corruption within the world’s growing middle classes will force the pace of change, especially amongst the Semi-Transparent countries, and social media will help people mobilize around this issue.
- Technology will continue to advance and will allow some countries to leapfrog the traditional route to transparency; we are already seeing this happen in places like Kenya, Ghana and Ecuador.
- There will be greater emphasis on regulatory reform, but also on enforcement, particularly in semi-transparent markets where the greatest disconnect currently exists.