The Relative Importance of Sectors V's Regions in Determining Property Returns
Abstract
A number of studies have investigated the benefits of sector versus
regional diversification within a real estate portfolio without explicitly
quantify the relative benefits of one against the other. This paper corrects
this omission by adopting the approach of Heston and Rouwenhorst (1994)
and Beckers, Connor and Curds (1996) on a sample of 187 property data points
using annual data over the period 1981-1995.
The general conclusion of which is the sector diversification explains
on average 22% of the variability of property returns compared with 8%
for administratively defined regions. A result in line with previous work.
Implying that sector diversification should be the first level of analysis
in constructing and managing the real estate portfolio. However, unlike
previous work functionally defined regions provide less of an explanation
of regional diversification than administrative regions. Which may be down
to the weak definition of economic regions employed in this study.