Investments made in the secondary real estate market are well-placed for out-performance, according to new analysis

Latest analysis from CBRE Research, in conjunction with PropertyMatch, shows that investors buying in the secondary real estate fund market are well-placed to outperform those buying direct. According to the report, there are several benefits achieved by buying on the secondary market that are proven by the data analysed to drive better performance.

The CBRE analysis shows that trading via the secondary market invariably offers a cheaper entry point than the primary market, where a premium of up to 6% to NAV will often be paid. Analysis of CBRE’s secondary trading platform, PropertyMatch, shows investors have saved an average of 6.11% against the price that would have been paid on the primary market.

Additionally, investors can often deploy capital more quickly on the secondary market, receiving funding performance faster than would be the case if they entered a queue on the primary market. For a typical long income fund for example, queues can be as long as 12 months, equating to an average of 9% of ‘missed performance’.

Such are the pricing and queue-jumping advantages of secondary market transactions, that even against a targeted investment strategy with perfect foresight that only invested in the best performing funds over that period, the analysis shows that a secondary market investor can out-perform a direct investor by ~1% on a rolling three-year based on investing in the first secondary transactions that are immediately available.

Our latest analysis supports the case for investing via the secondary fund market. The findings highlight the case for short-term tactical optimism when constructing real estate fund portfolios as well as the combined performance benefits of favorable pricing and queue jumping. Whilst liquidity in the secondary market is lower than the direct market it remains at a respectable level of around 3-4%.
Dominic Smith, Senior Director, CBRE Research