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Diversification in UK Property Portfolios

Author

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  • Tony Key
  • Stephen Devaney
  • Mark Callender

Abstract

The issue of diversification in direct real estate investment portfolios has been one of the most widely studied topics in academic and practitioner literature. Most work, however, has been done using mean returns and risks for broad market segments as inputs asset allocation models, or in a few cases using data from small sets of individual properties. This paper reports results from a comprehensive testing of asset allocation modelling drawing on records of 10,000+ UK properties tracked by Investment Property Databank. It provides for the first time robust estimates of the diversification gains attainable given return, risk and cross-correlations across individual properties actually available to fund managers. The discussion of results covers implications for the number of assets and amount of money needed to construct ìbalancedî portfolios by direct investment, or via indirect specialist vehicles.

Suggested Citation

  • Tony Key & Stephen Devaney & Mark Callender, 2007. "Diversification in UK Property Portfolios," ERES eres2007_155, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2007_155
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2007-155
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    Cited by:

    1. Charles-Olivier Amédée-Manesme & Michel Baroni & Fabrice Barthélémy & Mahdi Mokrane, 2015. "The impact of lease structures on the optimal holding period for a commercial real estate portfolio," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 33(2), pages 121-139, March.
    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. Charles-Olivier Amédée-Manesme & Fabrice Barthélémy, 2018. "Ex-ante real estate Value at Risk calculation method," Annals of Operations Research, Springer, vol. 262(2), pages 257-285, March.
    4. Charles-Olivier Amédée-Manesme & Michel Baroni & Fabrice Barthélémy & Mahdi Mokrane, 2015. "The impact of lease structures on the optimal holding period for a commercial real estate portfolio," Journal of Property Investment & Finance, Emerald Group Publishing, vol. 33(2), pages 121-139, March.
    5. Andrew Baum & Nick Colley, 2017. "Can Real Estate Investors Avoid Specific Risk?," Abacus, Accounting Foundation, University of Sydney, vol. 53(3), pages 395-430, September.
    6. Kevin C.H. Chiang & Xiaguan Jiang & Ming‐Long Lee, 2010. "REIT idiosyncratic risk," Journal of Property Research, Taylor & Francis Journals, vol. 26(4), pages 349-366, February.

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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