Risk diversification is important to all investors. However, commercial real estate investors in the UK tend to concentrate their holdings in relatively few properties; as a consequence they are vulnerable to significant risk of underperforming the overall market or a target rate of return. Given the potentially high risk of owning only a few properties, we follow de Vassal (2001) and examine the return/risk benefits of holding more properties in a portfolio. The analysis uses Monte Carlo techniques to simulate total returns of real estate portfolios with varying numbers of properties using individual property data over the period 1994-2003.
Devaney, Steven, and Stephen Lee. "Real Estate Portfolio Size and Risk Reduction." In Book of Abstracts: 2005 European Real Estate Society conference in association with the International Real Estate Society. ERES: Conference. Dublin, Ireland, 2005.
Section: Session B3