Tenant Business Characteristics and Commercial Real Estate Portfolio Fundamental Performance

Zhi Dong and Ningkun Li

Journal of Real Estate Portfolio Management, 2025, vol. 31, issue 1, 1-32

Abstract: This paper extends the literature on tenant characteristics and concentration on REIT performance. It fills in the knowledge gap of understanding how tenant business characteristics influence risk-return performance of directly held commercial real estate portfolios. Unlike the literature, it avoids compounding the peripheral information of financial leverage and capital market volatility into analyses for publicly traded real estate portfolios. We build a unique database of direct real estate by manually collecting fair value and rental value of investment real estate from annual reports of publicly traded real estate companies or trusts in New Zealand. Sharpe ratio and its significance on Z-statistic are analyzed and compared across twenty-four hypothetical portfolios sorted by geographic region, real estate sector and tenant business characteristic, respectively. It is found that certain tenant business industry can provide significantly superior performance during the entire sample period over other hypothetical portfolios. Specific tenant business industry and real estate sector show strong resilience to the 2007 global financial crisis. Tenant headquarter location signals commercial real estate risk-adjusted return performance. Our findings can facilitate researchers to extend their exploration of publicly traded real estate portfolios and help the understanding of market efficiency for commercial real estate and its related markets.

Date: 2025
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DOI: 10.1080/10835547.2024.2317676

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