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This paper aims to analyse the risk and excess returns of the Spanish real estate investment trusts (S-REITs) using various methods, though focusing primarily on the Fama-French three-factor (FF3) model, over the period from 2007Q3 to 2017Q2.

The autoregressive distributed lag model is used for the empirical analysis to test long-term stable relationships between variables.

The findings indicate that the FF3 model is suitable for the S-REITs market, better explaining the S-REITs’ returns variation than the traditional single-index capital asset pricing model (CAPM) and the Carhart four-factor model. The empirical evidence is reasonably consistent with the FF3 model; the values for the market, size and value are highly statistically significant over the analysis period, with 68.7% variation in S-REITs’ returns explained by the model. In the long run, the market factor has less explanatory power than the size and value factors; the positive long-term multiplier of the size factor indicates that small S-REIT companies have higher returns, along with higher risk, while the negative multiplier of the value indicator suggests that S-REITs portfolios prefer to allocate growth REITs with low book-to-market ratios. The empirical findings from a modified FF3 model, which additionally incorporates Spain’s gross domestic product (GDP) growth rate, two consumer price index (CPI) macro-factors and three dummy variables, indicates that GDP growth rate and CPI also affect S-REITs’ yields, while investment funds with capital calls have a small influence on S-REITs’ returns.

The regression results of the standard and extended FF3 model can help researchers understand S-REITs’ risk and return through a general stock pattern. Potential investors are given more information to consider the new Spanish investment vehicle before making a decision.

The paper uses standard techniques but applies them for the first time to the S-REIT market.

This paper aims to explain the main difficulties in the Spanish residential rental market becoming a true alternative to home ownership.

Currently, the Spanish rental market only meets temporary housing needs; it is very atomized and lacks professionalism. It does not provide an adequate legal framework to fulfil the parties’ aspirations (i.e. stability, affordability and flexibility for tenants; profitability, security and guarantees to landlords). The analysis of this proposition and the resulting proposal are based on six years of research, which started with the TENLAW European project.

Overcoming these constrains is essential to double the rate of residential leases in Spain and get closer to the European average, thus achieving a true diversification of housing tenures and avoiding future housing bubbles.

The paper makes a series of recommendations to legislators and policymakers to draft an adequate legal framework aimed at increasing the housing rental market share. This is based on the experience of mature tenancy markets in Europe, such as the German, Swiss and Austrian ones.

The new proposed legal framework will help to transform the tenancy model in Spain into a functional one, making it more stable, affordable and flexible, while increasing safety and profitability for landlords. The model is also applicable, on a more general level, to all Mediterranean European countries.

Rethinking the regulation of tenancies, in a context of housing crisis and unaffordability (still a reality in many European and worldwide countries) has valuable potential for making this type of tenure more popular and for avoiding future housing bubbles.

Spanish real estate investment trusts (REITs) emerged as an important and rapidly expanding property investment vehicle, against the backdrop of improving Spain macro-economic fundamentals and commercial property market. This sees Spanish REITs being the 3rd largest REIT market in Europe, offering access to important Iberian and European property assets, with the added benefits of transparency, governance and liquidity. The purpose of this paper is to assess the significance, risk-adjusted performance and portfolio diversification benefits of Spanish REITs in a mixed-asset portfolio over August 2014–February 2018.

Using monthly total returns, the risk-adjusted performance and portfolio diversification potential of Spanish REITs over August 2014–February 2018 are assessed. Asset allocation diagrams are used to assess the role of Spanish REITs in a mixed-asset portfolio.

Spanish REITs delivered strong risk-adjusted returns compared to stocks over August 2014–February 2018, but with limited portfolio diversification benefits. Compared to bonds, Spanish REITs offered competitive risk-adjusted returns and excellent diversification benefits. Importantly, this sees Spanish REITs as strongly contributing to the Spanish mixed-asset portfolio across the portfolio risk spectrum.

The 2012 Spanish REIT regulatory changes have been pivotal in providing a supportive environment for Spanish REITs’ growth. Spanish REITs are now a significant market in a European context. The results highlight the major role of Spanish REITs in a Spanish mixed-asset portfolio. The strong risk-adjusted performance of Spanish REITs compared to stocks sees Spanish REITs contributing to the mixed-asset portfolio across the portfolio risk spectrum. This is particularly important, as an increasing number of investors have utilised Spanish REITs to obtain their property exposure in a liquid format in recent years.

This paper is the first published empirical research analysis of the risk-adjusted performance of Spanish REITs, and the role of Spanish REITs in a mixed-asset portfolio. This research enables empirically validated, more informed and practical property investment decision-making regarding the strategic role of Spanish REITs in a portfolio.