The definition of property is expanding

News

05 February 2007

But people are gradually broadening their definition. The main reason for this, of course, is that it is very difficult to find good assets in the traditional property classes. Yields have fallen as an increasing number of investors have added property to their portfolio. As a consequence, investors are seeking out other investment opportunities that they can label as property.

Last year, we were debating whether we should report on the sale of a portfolio of Finnish petrol stations. We decided against it because we didn’t think it was property per se. If the petrol station operator goes bust, there is no alternative use for the land on which the petrol stations were built. What if our cars are powered by solar energy or hydrogen in a few years?

I agree that our rule to define property may sound a bit arbitrary to some. After all, there’s enough empty office space around Europe for which there is no alternative use. But we would still regard this as property. It’s a tricky issue.

So what about hotels? For years, they were ignored by the majority of property investors. Today, the hotel market is booming. Yields are similar to those for offices. Last year, Invesco launched the first European hotel fund, and a European hotel real estate investment trust could arrive soon.

A non-traditional asset class

Of course, there are and always will be investors who don’t regard hotels as a traditional property class. But we’ve reached a point in the evolution of the market where we can no longer afford to exclude certain asset classes. You may prefer offices, but what if the product is simply not there?

At EuroProperty, we’ve decided that hotels are now more or less mainstream property. I hope you enjoy reading our first hotel survey.

What is property? A panellist at a recent conference in London described it as a piece of land with a business on it that produces income. Any business will do. I’m sure that this is not a definition that will be appreciated by the purists among you. For a long time, commercial, retail and residential have been regarded as the three traditional real estate classes. But people are gradually broadening their definition. The main reason for this, of course, is that it is very difficult to find good assets in the traditional property classes. Yields have fallen as an increasing number of investors have added property to their portfolio. As a consequence, investors are seeking out other investment opportunities that they can label as property. Last year, we were debating whether we should report on the sale of a portfolio of Finnish petrol stations. We decided against it because we didn’t think it was property per se. If the petrol station operator goes bust, there is no alternative use for the land on which the petrol stations were built. What if our cars are powered by solar energy or hydrogen in a few years? I agree that our rule to define property may sound a bit arbitrary to some. After all, there’s enough empty office space around Europe for which there is no alternative use. But we would still regard this as property. It’s a tricky issue. So what about hotels? For years, they were ignored by the majority of property investors. Today, the hotel market is booming. Yields are similar to those for offices. Last year, Invesco launched the first European hotel fund, and a European hotel real estate investment trust could arrive soon. A non-traditional asset classOf course, there are and always will be investors who don’t regard hotels as a traditional property class. But we’ve reached a point in the evolution of the market where we can no longer afford to exclude certain asset classes. You may prefer offices, but what if the product is simply not there? At EuroProperty, we’ve decided that hotels are now more or less mainstream property. I hope you enjoy reading our first hotel survey.