Sector and Regional Factors in Real Estate Returns
Abstract
This paper presents a simple method to measure the effect of sector
and regional factors in real estate returns, and thus provides a quantitative
framework for analysing the relative impact of these two diversification
categories to real estate portfolio selection. Using data on Retail, Office
and Industrial properties spread across 326 real estate locations in the
UK, over the period 1981 to 1995, the results show that the performance
of real estate is largely sector-driven. A result in line with previous
work. Which implies that the sector composition of the real estate fund
should be the first level of analysis in constructing and managing the
real estate portfolio. As a consequence real estate fund managers need
to pay more attention to the sector allocation of their portfolios than
the regional spread.