PT - JOURNAL ARTICLE AU - Ivo de Wit AU - Christopher Mayer TI - Global Risk Premiums on Direct Office Real Estate Returns AID - 10.3905/jpm.2021.1.266 DP - 2021 Jun 15 TA - The Journal of Portfolio Management PG - jpm.2021.1.266 4099 - https://pm-research.com/content/early/2021/06/15/jpm.2021.1.266.short 4100 - https://pm-research.com/content/early/2021/06/15/jpm.2021.1.266.full AB - This article empirically examines the magnitude of risk premiums for direct real estate investments on a global basis. As this article analyzes ex-ante risk premiums over more than 25 years consistently across the world, it enhances current knowledge about the regional differences between risk premiums and helps long-term investors with their global portfolio allocation over time. On a global level, the authors find a risk premium of 4.1% for Gordon’s growth and 3.7% for two-stage growth model. The periodic growth model shows a slightly lower risk premium of 3.1%. As this study is analyzing a long time period, the article extends the literature by finding evidence for convergence between risk premiums across continents both over time and in cross-sectional variance. However, this is happening slowly, thereby making differences in risk premiums very important in making a global direct real estate investment allocation.TOPICS: Real estate, analysis of individual factors/risk premia, portfolio construction, performance measurementKey Findings▪ The authors analyze ex-ante risk premiums over more than 25 years across the world and use three alternative valuation models to estimate ex-ante risk premiums.▪ They find that the regional risk premiums are consistent with previous research on the determinants of risk premiums, but these studies were done over shorter time periods. ▪ The authors find evidence for convergence between risk premiums across continents both over time and in cross-sectional variance.