Property market indices and lease structures – the impact on investment return delivery in the UK and Germany: Part I

The lack of portfolio‐based property indices in European property markets has led researchers to consider the use of notional property indices to determine the risk and return rewards of investing in these markets. Owing to the computation assumptions underlying notional indices, in particular their inability to capture the prevalent lease structure in a market, they are unsuitable for this purpose, and investors devising European investment strategies around them need to be wary. This paper demonstrates the differences in property investment return delivery between notional and portfolio‐based indices, concentrating particularly on lease structures, and utilises data from the UK for this purpose. German lease structures are then considered in this context.