ECONOMIES OF SCALE FOR ASIA REITS: ARE THERE EFFICIENCY GAIN FOR LARGER REITS?

Abstract

This dissertation empirically identified the reasons behind active growth in number of Real Estate Investment Trust (REIT) and market capitalization of individual REIT in Asia since inception in Japan in 2001. This work employs Translog, Semi-log and Quadratic models to empirically examine the effects of scale on Asia REITs in costs, revenue, capital raising and returns. Results showed that economies of scale does exist in costs aspect of Asia REITs market. Nevertheless, revenue also demonstrated marginal decreases when asset size increases. Returns would evaluate which of the opposing force, costs or revenue, decreases greater marginally. This study showed that marginal decrease in costs is greater. The ability of individual Asia REIT market was further examined in this dissertation. Results showed that the longest history and biggest Asia REIT market, Japan, reaped the most benefits from scale among Asia. Results also displayed no evidence that investors are at an advantage investing in larger cap-size REITs. Economies of scale also occurs in the overall Asia REIT industry, expenses of Asia REITs decreases over the years. Thus, expansions and growth would be favourable for individual REIT in a long run.