Real estate portfolio diversification by property type and region

Abstract

Analyses data from the USA and UK to determine whether diversification within a region by property type is better than diversification between regions within a property type. Compares both strategies to full diversification by both property type and region. Calculates and compares property type and regional correlation matrices. Produces efficient frontiers and calculates principal components to determine if there are dominant property type or regional dimensions to real estate returns. Suggests that for the USA a purely retail portfolio diversified over all regions would have been almost as effective as a fully diversified portfolio. In the UK, there is less diversity across regions within retail property. Overall, there is no simple conclusion applicable to all regions and all property types in either country.

Citation

Eichholtz, P.M.A., Hoesli, M., MacGregor, B.D. and Nanthakumaran, N. (1995), "Real estate portfolio diversification by property type and region", Journal of Property Finance, Vol. 6 No. 3, pp. 39-59. https://doi.org/10.1108/09588689510101676