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Technical note


Global Real Estate Transparency Index 2016


The Transparency Index

The JLL Global Real Estate Transparency Index is based on a combination of quantitative market data and information gathered through a survey of the global business network of JLL and LaSalle Investment Management across 109 markets in 2016, up from 102 in 2014. This update adds coverage of Djibouti, Ecuador, Iran, Ivory Coast, Luxembourg, Rwanda, Sri Lanka, Tanzania and a new city tier in China. Jamaica and Mongolia were withdrawn from this update.

For each market we use 139 separate factors, both quantitative data points and survey questions, to calculate the composite score. The survey data and quantitative measures complement each other. For example, knowing the market coverage and length of a country’s direct real estate index is only one half of the story; for a complete picture we also gather qualitative data on whether investors actually trust and use the index. Our local research teams, in consultation with business leaders and real estate professionals active in each market, complete the survey. A table summarising the factors behind the Index is at the end of this note.

In the 2016 Index we have continued to incrementally add depth to the Index, breaking general questions into more specific, granular components. From 2012 to 2014 we moved from 83 constituent factors/questions to 115. And, in this update, we have increased the number of factors to 139. The question wording and scoring methodology for the vast majority of our survey components (112) were unchanged; in this update we modified three components and added 24 new ones. Our additions were in three areas.

  • ‘Market Fundamentals’: we added new factors asking about the depth of coverage by disaggregated databases, including those covering alternative property sectors.
  • ‘Governance of Listed Vehicles’: we asked directly about shareholders’ ability to change the direction of a property company.
  • Real Estate Debt Information (‘Regulatory and Legal’): we incorporated quantitative data on the length of data series on outstanding commercial real estate debt, the length of data series on commercial real estate debt originations, and delinquency rates on that debt. For the first time we also asked directly about the availability of information on LTVs and spreads.

These gradual changes allow us to better capture where markets differ and reduce measurement error by making the overall scoring less reliant on any single factor.

Quantitative Factors

64 of the 139 scoring factors, accounting for 33% of the overall factor weighting, are quantitative: based on facts such as the first year that time series data on vacancy became available, market size, index coverage percentage, and the free float of public listed real estate securities markets. Many of these factors are collected centrally from third-party sources, ensuring consistency in methodology. We score most of these quantitative factors on a continuous scale from 1 to 5, with 1.00 indicating very high transparency. For data points on performance measurement indicators, like the market coverage of property return indices, we have set the top score of 1 equal to the 90th percentile observation in 2012. The cut-off thresholds to qualify as a ‘Highly Transparent’ market have been fixed at their 2012 level, so that markets can improve to higher tiers over time. For data points on ‘Market Fundamentals’ data – for example, the length of a market’s office vacancy series – we have set the top score of 1 equal to a time series of 30 years or more, which we view as the ‘gold standard’.

Researchers at JLL and LaSalle Investment Management have collected detailed data on the available market fundamentals time series for each of five property types: office, retail, industrial, residential and hotels. We have included all available data series, not only those produced by JLL. The ‘Market Fundamentals’ data is based on conditions in the principal city of each country, with the exceptions of Brazil, China, India, Russia and the United Arab Emirates, where the Index differentiates between cities.

Market data on fundamentals and on properties from disaggregated databases comes from local sources that differ considerably across markets. It covers six property types: office, retail, industrial, residential, hotels and alternatives. Debt data is provided by a mix of central banks and third-party research firms. The available data on property level returns indices is provided from a variety of sources across markets, MSCI (IPD) and NCREIF prominent among them. Data on public listed real estate comes from the European Public Real Estate Association (EPRA), Bloomberg, NAREIT and the LaSalle Investment Management Securities group. Fund level index data is primarily from INREV, NCREIF, MSCI (IPD) and ANREV.

Qualitative Survey Factors

The balance of the scoring factors, totalling 75 data points, is qualitative survey questions scored by local JLL and LaSalle Investment Management teams. These factors measure data quality, how data is actually used in each market, and aspects of transparency that are impossible to boil down to a number for each market: like the quality of land use planning data and its transparency, or the transparency of the bidding process and pre-sale information. For each, local research teams are provided with a detailed rubric of five answer choices, ranging from 1 – most transparent – to 5 – opaque. Based on where their market fits within that rubric of options, local experts assign a score. Respondents consult JLL’s local accounting, finance, asset management and legal experts to inform their responses to questions in those topic areas.

Scores within each region are then reviewed by regional and then global coordinators to ensure objectivity and rigour. Global and regional reviewers interrogate country teams’ responses and challenge teams to justify changes in question scores from prior updates. The review process, the high level of detail provided in the answer choices and the improved question granularity reduce subjective bias in scoring, and all contributors strive for impartiality in their responses.

Compiling the Transparency Index

We group the 139 individual transparency measures into 13 topic areas, summarised in the table at the end of this note. Our weightings across sub-indices and topic areas are unchanged in 2016 from our 2014 update. These topic areas are grouped and weighted into five broad sub-indices:

The Transparency Index scores range on a scale from 1 to 5. A country or market with a perfect 1.00 score has total real estate transparency; a country with a 5.00 score has total real estate opacity. Markets are then assigned to one of five transparency tiers. The thresholds for these tiers are defined based on Jenks’ Natural Breaks classification. 2012 scores are used to fix the thresholds, so that markets can move between tiers as transparency changes over time even if their relative position does not change. This algorithm finds the cut-offs that minimise within-group variance and maximise between-group differences. We create ten groups using this method and then aggregate them into five tiers with the following thresholds:

Transparency Index Time Series

2016 marks the ninth edition of the JLL Global Real Estate Transparency Index. Since its inception in 1999, the Index has evolved and been refined to reflect the changing demands of cross-border investors and corporate occupiers. In previous Transparency Indices we calculated a ‘Composite’ score for the current update and an additional ‘Classic’ score to make comparisons over time. Rather than continuing to calculate two parallel indices, in 2014 we cleaned the historical data to make a single time series from 2004. Factors added over time have been included historically where available. Where no historic data is available, we have extended back 2012 data so that changes in the added factors do not drive movement in the historic scores. A brief history of recent additions to the Index includes:

  • 2008: New questions were added to embrace the perspective of corporate occupiers relating to occupier service charges and facilities management. Questions concerning debt financing and the frequency and credibility of property valuations were also included.
  • 2010: The existing questions regarding debt financing were substantially revised to more appropriately reflect the key issues of debt transparency, relating to the availability of information on commercial real estate debt and the role of bank regulators in monitoring commercial real estate lending. There were also revisions to questions on the transaction process covering pre-sale information and the bidding and negotiating process.
  • 2012: Major additions were made to incorporate a greater number of quantitative measures of investment performance and market fundamentals. In each of these two areas, general questions were divided into many different granular questions to better capture nuanced differences between markets. In all, 50 new factors were added by decomposing general questions into more detailed questions.
  • 2014: We continued to decompose general questions into more specific ones, resulting in the addition of 32 new factors. These additions were spread across categories, as shown in the table below. For example, rather than asking a single general question on tax fairness as we did in 2012, we included four questions on tax in 2014, covering the consistency of enforcement and predictability of tax rates for both domestic investors and foreign investors.
  • 2016: We have added 18 new factors that capture the proportional market coverage of disaggregated databases on leasing, buildings and transactions, one example being Real Capital Analytics. We have included coverage of alternative property sectors (such as student accommodation and self-storage). We have also enhanced our debt questions to make them quantitative (based on the start year of data time series) and to cover LTV and margin data.
Factor Comparison Number of Factors in 2012 Number of Factors in 2014 Number of Factors in 2016
Direct Property Indices 5 6 6
Listed Real Estate Securities 5 7 7
Unlisted Fund Indices 2 3 3
Valuations 2 4 4
Fundamentals Data 47 47 68
Financial Disclosure 2 4 4
Corporate Governance 2 3 4
Regulation 6 13 13
Land and Property Registration 3 7 7
Eminent Domain 2 3 3
Debt Regulation 2 7 8
Sales Transactions 3 5 5
Occupier Services 2 6 7

Real Estate Environmental Sustainability Transparency Index

A separate Real Estate Environmental Sustainability Transparency Index has been developed for a subset of 37 countries. The Index is based on a survey completed by JLL Research and JLL Energy and Sustainability Services experts in each country. The survey comprises seven questions relating to different components of environmental sustainability, covering:

  • Financial Performance Indices for Green Buildings
  • Green Building Rating Systems
  • Carbon Reporting Frameworks
  • Energy Consumption Benchmarking Systems
  • Energy Efficiency Requirements for New Buildings
  • Energy Efficiency Requirements for Existing Buildings
  • Green Lease Clauses

For each question our expert teams were provided with a detailed rubric of three answer choices, ranging from 1 – most transparent – to 5 – opaque. Based on where their market fits within that rubric of options, respondents assigned a score. The questions were answered with respect to commercial office real estate. An overall Real Estate Environmental Sustainability Transparency Index was calculated by equally weighting the scores for the seven questions.

Note that there is no ‘Opaque’ group of countries in the Sustainability Transparency ratings as the inclusion of the 37 countries in this survey qualifies them as minimally transparent. Also, scoring tiers are different from the main Transparency index tiers but were kept the same as in 2014.

Global Real Estate Transparency Index, Transparency Components
(13 Topics and 139 Factors)

Performance Measurement
Market Fundamentals
Governance of Listed Vehicles
Regulatory and Legal
Transaction Process
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