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Another Look at the Relative Importance of Sectors and Regions in Determining Property Returns

Author

Listed:
  • Mark Andrew

    (Department of Economics, University of Reading School of Business)

  • Steven Devaney

    (Department of Real Estate & Planning, University of Reading Business School)

  • Stephen Lee

Abstract

This paper re-examines the relative importance of sector and regional effects in determining property returns. Using the largest property database currently available in the world, we decompose the returns on individual properties into a national effect, common to all properties, and a number of sector and regional factors. However, unlike previous studies, we categorise the individual property data into an ever-increasing number of property-types and regions, from a simple 3-by-3 classification, up to a 10 by 63 sector/region classification. In this way we can test the impact that a finer classification has on the sector and regional effects. We confirm the earlier findings of previous studies that sector-specific effects have a greater influence on property returns than regional effects. We also find that the impact of the sector effect is robust across different classifications of sectors and regions. Nonetheless, the more refined sector and regional partitions uncover some interesting sector and regional differences, which were obscured in previous studies. All of which has important implications for property portfolio construction and analysis.

Suggested Citation

  • Mark Andrew & Steven Devaney & Stephen Lee, 2003. "Another Look at the Relative Importance of Sectors and Regions in Determining Property Returns," Real Estate & Planning Working Papers rep-wp2003-14, Henley Business School, University of Reading.
    • Handle: RePEc:rdg:repxwp:rep-wp2003-14
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    File URL: http://www.reading.ac.uk/LM/LM/fulltxt/1403.pdf
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    References listed on IDEAS

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    1. Kennedy, Peter, 1986. "Interpreting Dummy Variables," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 174-175, February.
    2. Beckers, Stan & Grinold, Richard & Rudd, Andrew & Stefek, Dan, 1992. "The relative importance of common factors across the European equity markets," Journal of Banking & Finance, Elsevier, vol. 16(1), pages 75-95, February.
    3. Marc A. Louargand, 1992. "A Survey of Pension Fund Real Estate Portfolio Risk Management Practices," Journal of Real Estate Research, American Real Estate Society, vol. 7(4), pages 361-374.
    4. Martin Hoesli & Colin Lizieri & Bryan MacGregor, 1997. "The Spatial Dimensions of the Investment Performance of UK Commercial Property," Urban Studies, Urban Studies Journal Limited, vol. 34(9), pages 1475-1494, August.
    5. Stephen L. Lee, 2001. "The Relative Importance of Sector and Regional Factors in Real Estate Returns," ERES eres2001_206, European Real Estate Society (ERES).
    6. Heston, Steven L. & Rouwenhorst, K. Geert, 1994. "Does industrial structure explain the benefits of international diversification?," Journal of Financial Economics, Elsevier, vol. 36(1), pages 3-27, August.
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    Cited by:

    1. Peter Byrne & Stephen Lee, 2006. "Geographical Concentration in the Institutional Market for Office Property in England and Wales," Real Estate & Planning Working Papers rep-wp2006-07, Henley Business School, University of Reading.
    2. Peter Byrne & Stephen Lee, 2007. "Spatial Concentration in Institutional Investment in the UK: Some comparisons between the Retail and Office Sectors," Real Estate & Planning Working Papers rep-wp2007-01, Henley Business School, University of Reading.
    3. Steven Devaney & Stephen Lee, 2003. "Changes in the Relative Importance of Sector and Regional Factors: 1987-2002," Real Estate & Planning Working Papers rep-wp2003-16, Henley Business School, University of Reading.
    4. Steven Devaney, 2003. "Evaluating the Effectiveness of Common Structures in Property Portfolio Construction," Real Estate & Planning Working Papers rep-wp2003-13, Henley Business School, University of Reading.
    5. Stephen Lee & Steven Devaney, 2006. "The Changing Importance of Sector and Regional Factors in Real Estate Returns: 1987--2002," Journal of Property Research, Taylor & Francis Journals, vol. 24(1), pages 55-69, November.

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