Risk Reduction and Diversification in UK Commercial Property Portfolios

Mark Callender, Steven Patrick Devaney, Angela Sheahan, Tony Key

    Research output: Contribution to journalArticle

    13 Citations (Scopus)

    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.
    Original languageEnglish
    Pages (from-to)355-375
    Number of pages21
    JournalJournal of Property Research
    Volume24
    Issue number4
    DOIs
    Publication statusPublished - Dec 2007

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    diversification
    real estate
    direct investment
    investor
    assets
    money
    risk reduction
    manager
    test
    method

    Cite this

    Risk Reduction and Diversification in UK Commercial Property Portfolios. / Callender, Mark; Devaney, Steven Patrick; Sheahan, Angela; Key, Tony.

    In: Journal of Property Research, Vol. 24, No. 4, 12.2007, p. 355-375.

    Research output: Contribution to journalArticle

    Callender, Mark ; Devaney, Steven Patrick ; Sheahan, Angela ; Key, Tony. / Risk Reduction and Diversification in UK Commercial Property Portfolios. In: Journal of Property Research. 2007 ; Vol. 24, No. 4. pp. 355-375.
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