Risk Reduction and Diversification in UK Commercial Property Portfolios

Mark Callender, Steven Devaney, Angela Sheahan and Tony Key

Journal of Property Research, 2007, vol. 24, issue 4, 355-375

Abstract: The issue of diversification in direct real estate investment portfolios has been widely studied in academic and practitioner literature. Most work, however, has been done using either partially aggregated data or data for small samples of individual properties. This paper reports results from tests of both risk reduction and diversification that use the 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 the returns, risks and cross‐correlations across the individual properties available to fund managers. The results quantify the number of assets and amount of money needed to construct both ‘balanced’ and ‘specialist’ property portfolios by direct investment. Target numbers will vary according to the objectives of investors and the degree to which tracking error is tolerated. The top‐level results are consistent with previous work, showing that a large measure of risk reduction can be achieved with portfolios of 30--50 properties, but full diversification of specific risk can only be achieved in very large portfolios. However, the paper extends previous work by demonstrating on a single, large dataset the implications of different methods of calculating risk reduction, and also by showing more disaggregated results relevant to the construction of specialist, sector‐focussed funds.

Date: 2007
References: View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://hdl.handle.net/10.1080/09599910801916279 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:jpropr:v:24:y:2007:i:4:p:355-375

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RJPR20

DOI: 10.1080/09599910801916279

Access Statistics for this article

Journal of Property Research is currently edited by Bryan MacGregor

More articles in Journal of Property Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().