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Managing Portfolio Risk in Real Estate

Author

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  • Gerald F. Blundell
  • Simon Fairchild
  • Robin N. Goodchild

Abstract

This paper seeks to map out a practical way for managing risk in property portfolios. The approach adopted is to identify the factors that cause volatility in property returns. The factors are categorised in two groups -- ‘fundamental’ causes of property return volatility and ‘modulators’ that dampen or exacerbate the variance emanating from the fundamentals. This approach enables a risk profile for individual property portfolios to be presented showing their relative exposures on the different risk dimensions. Analysis of the IPD UK universe of funds shows both that a number of the identified risk variables are correlated with higher tracking error and that the main types of UK investment fund have different risk profiles. Preliminary analysis is presented on the development of a model for predicting the tracking error for UK portfolios. The initial results show some promise but the model as specified here is not capturing a significant portion of the variance.

Suggested Citation

  • Gerald F. Blundell & Simon Fairchild & Robin N. Goodchild, 2005. "Managing Portfolio Risk in Real Estate," Journal of Property Research, Taylor & Francis Journals, vol. 22(2-3), pages 115-136, November.
    • Handle: RePEc:taf:jpropr:v:22:y:2005:i:2-3:p:115-136
    DOI: 10.1080/09599910500456759
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    Citations

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    Cited by:

    1. Stanimira Milcheva & Bing Zhu, 2018. "Asset pricing, spatial linkages and contagion in real estate stocks," Journal of Property Research, Taylor & Francis Journals, vol. 35(4), pages 271-295, October.
    2. Brett Robinson, 2012. "How many leases are enough to diversify a portfolio of multi-let industrial properties?," ERES eres2012_351, European Real Estate Society (ERES).
    3. Carsten Lausberg & Stephen Lee & Moritz Müller & Cay Oertel & Tobias Schultheiß, 2020. "Risk measures for direct real estate investments with non-normal or unknown return distributions," Zeitschrift für Immobilienökonomie (German Journal of Real Estate Research), Springer;Gesellschaft für Immobilienwirtschaftliche Forschung e. V., vol. 6(1), pages 3-27, April.
    4. Cath Jackson & Allison Orr, 2011. "Real estate stock selection and attribute preferences," Journal of Property Research, Taylor & Francis Journals, vol. 28(4), pages 317-339, April.
    5. Franz Fuerst & Gianluca Marcato, "undated". "Re-thinking Commercial Real Estate Market Segmentation," Real Estate & Planning Working Papers rep-wp2010-12, Henley Business School, University of Reading.

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