The Performance and Diversification Benefits of European Public Real Estate Securities

Abstract

This work analyzes the performance and diversification characteristics of European public real estate markets. There are three overall findings and one key observation. First, real estate has added significantly to overall portfolio outcomes in terms of increasing return and decreasing risk. Second, as found by others, real estate is a low beta investment and performs well during periods of market change - it was especially useful during the general market adjustment in 2000. Third, European real estate has performed very strongly since the 2000 stock market decline.

Finally, our assessment of why there is not more real estate in institutional portfolios requires an answer beyond examining just risk and return measures. This report will show that public real estate markets have provided strong performance for investors and warrant consideration for inclusion in institutional portfolios. Given these desirable characteristic it is likely that other features of the sector may have impacted on desired asset allocation (e.g liquidity, small market capitalisations, etc). Hence, the question of why institutions do not hold more real estate, is not about the attributes of return and risk per se, but about its legal form of ownership and the lack of market depth in terms of trading.

Keywords: real estate, diversification benefits, europe

JEL Classification: G11, R33