Risk-Return Performances of Sustainability and REIT Indices: Evidence from the Turkish Real Estate Market

Turkish real estate industry has been one of the pioneer industries that stimulate economic growth in Türkiye. Although foreign individual investors are very interested in investing in direct real estate, the real estate capital market instruments are unable to attract foreigners in the long run. Despite the history of Turkish real estate investment trusts (T-REITs) back to the 1990s in Türkiye, foreign investors interest in REITs has been limited. Sustainability, in that context, is a critical issue for investors when considering making investments, yet among 39 T-REITs in Türkiye, there is only one company listed in Borsa Istanbul (BIST) Sustainability Index. This study analyzes the correlation of T-REIT and Sustainability Indices between December 2014 and May 2023 and compares their risk-return performances using the Sharpe ratio. The results of the analysis revealed that there is a strong correlation between the two indices and the Sustainability Index overperforms the T-REIT Index. Being one of the pioneers in this area, this study provides important recommendations to policymakers such as applying sustainability regulations on REITs and suggesting a REIT sustainability index.