In the latest Bayfield Training Webinar, Natalie Bayfield and Tony McGough present: An Introduction To Real Estate Research. In this webinar, Tony discusses the importance of Real Estate, the key areas of Real Estate Research and the impact of the COVID-19 outbreak on future research. Tony McGough is a Real Estate Quants expert with 30 years’ experience, spanning almost the entire commercial real estate market data set.

Salient Points of Real Estate Research

First, ensure that all research is kept up to date and supported by the latest data and industry techniques. The validity of the research is hampered when the latest techniques and methods are not used.  Second, the research should be kept relevant to the broader context and environment. As Tony states, “writing a paper on investing in a steady-state environment when the economy is running smoothly,” would be ill-suited in the current economic environment. Third, the research should be useable, particularly for the private sector. Precisely, one should aim to answer the ‘so what’ question: A) What does this mean? B) What is the implication of the research? C)How can the research be used?

Answers Questions For The Time

It is imperative to produce research relevant to the time. For example, to illustrate this point, Tony provides a historical overview of the evolution of different modelling techniques utilized:

  1. Early 1990’s: Research focused on magnitudes of cycles and influences of markets.
  2. Late 1990’s: Development of capital market linkages, such as the Archer & Ling model (1997). This propelled the development of yield modelling.
  3. Early 2000’s: Relative Asset Pricing— Use of Fair Value Index (FVI) which assesses the risk of investing in property versus the returns one acquires.
  4. Global Financial Crisis: Use of FVI and Simulation/scenario analysis to stress test.

Increased computing power and access to extra data over the past 30 years has significantly propelled the development of more relevant research and modelling techniques.

Current Topical Areas

Which areas are salient to look at now? Tony explains that he currently spends his time assessing several areas. First, the pricing and breakdown of government bonds. Government bonds provide relevant signals, such as the term premium and inflation-GDP data. Recently, negative bonds have distorted the pricing of assets. Second, risk pricing and revealing of risk in the market. The financial markets reveal their appetite for risk through the pricing of bonds and shares, which is intimately tied to the pricing of property because of the risk it carries. Third, Tony urges researchers to keep an eye on other areas, such as PropTech or Block-chain to keep yourself relevant and up to date.

Future of Research

To conclude, Tony provides a summary of where the future of research is heading.

First, risk and return remain relevant. Tony states, “the returns expected from markets and the risks taken continue to be fundamental for investors.” Second, the modelling of Black Swans. While Black Swans are, by definition, unpredictable events, it is still essential for researchers to continue stress-testing research and to apply probabilistic thinking. Specifically, one should aim to imagine alternate scenarios and provide investors with empirically backed research on how to navigate around them. For example, future downside and upside scenarios. Third, assessing the impact of a changing world in the context of the COVID-19 outbreak and new technology. For example, exploring the long-term impact of working from home for the office-space market. In sum, as Tony explains, researchers must assess the underlying structural changes occurring around the globe.


Written by,
Khathu Nematswerani, Research Intern