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Frontiers of commercial real estate portfolio performance: Are sector-region-efficient diversification strategies a myth or reality?

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  • Vitor Leone
  • Geetha Ravishankar

Abstract

This paper departs from the traditional optimisation methods used to evaluate portfolio performance. Rather, the Stochastic Frontier Analysis approach is used to econometrically determine the benchmark real estate portfolio frontier and subsequently assess the gains from diversifying real estate portfolios along regional and sectoral dimensions in the UK. Portfolio specific inefficiency measures are obtained which indicate whether a portfolio is efficiently diversified and therefore places on the benchmark frontier and if not, the degree to which performance can be improved is quantified. Portfolio-specific efficiencies average at 85–91%, indicating scope to further improve performance. Further, diversification be it on a sectoral or regional dimension, contributes to significantly lower variability in portfolio efficiencies.

Suggested Citation

  • Vitor Leone & Geetha Ravishankar, 2018. "Frontiers of commercial real estate portfolio performance: Are sector-region-efficient diversification strategies a myth or reality?," Journal of Property Research, Taylor & Francis Journals, vol. 35(2), pages 95-116, April.
    • Handle: RePEc:taf:jpropr:v:35:y:2018:i:2:p:95-116
    DOI: 10.1080/09599916.2017.1410851
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    Cited by:

    1. Kai Li & Zhili Ma & Guozhou Zhang, 2019. "Evaluation of the Supply-Side Efficiency of China’s Real Estate Market: A Data Envelopment Analysis," Sustainability, MDPI, vol. 11(1), pages 1-18, January.
    2. Candelon, Bertrand & Fuerst, Franz & Hasse, Jean-Baptiste, 2021. "Diversification potential in real estate portfolios," International Economics, Elsevier, vol. 166(C), pages 126-139.
    3. Arkadiusz Górski & Kamila Urbańska & Agnieszka Parkitna, 2020. "Identification of risks of investments into residential premises for rent in Poland," WORking papers in Management Science (WORMS) WORMS/20/15, Department of Operations Research and Business Intelligence, Wroclaw University of Science and Technology.

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