Optimal Diversification in U.S./U.K. Private Real Estate Only Portfolios: The Good, the Bad, and the Uncertain

Stanley McGreal, Alastair Adair and James Webb

Journal of Real Estate Portfolio Management, 2009, vol. 15, issue 1, 87-93

Abstract: Executive Summary. This study constructs sixteen mean-variance optimal portfolios of private real estate using returns from the United States and the United Kingdom. First, the analysis uses total returns by property type (retail, office, and industrial). Second, the returns are separated into their two components: returns from income and returns from appreciation. Third, optimal portfolios are constructed by type of return and again by property type. Finally, all returns are considered together. Several non-obvious and non-trivial results emerge. For example, the high risk portfolios using total returns are 100% U.K. for all three property types and when the three property types are combined, offices, generally regarded as the most popular type of institutional real estate investment, never enter the optimal portfolio for either the U.S. or the U.K.

Date: 2009
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DOI: 10.1080/10835547.2009.12089831

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