Diversification Potential in Real Estate Portfolios

Abstract

In this paper, we study the international and sectoral diversification potential in real
estate portfolios. Building on a unique dataset of direct real estate markets covering 16 OECD
countries over the 1999-2018 period, we introduce a statistical test to compare country-level
and sector-level diversification potential. This new diversification test provides investors and
analysts with a valuable tool as it delivers both estimates and robust significance levels. The
empirical findings for real estate investments broadly reveal that international diversification
dominates sectoral diversification.

Keywords: Portfolio diversification, real estate markets

JEL Classification: F21, G11, R33