US real estate as target assets for European investors. New empirical evidence of diversification benefits

Date01 July 2019
Publication Date01 July 2019
AuthorCay Oertel,Thomas Gütle,Benjamin Klisa,Sven Bienert
SubjectProperty management & built environment
US real estate as target assets
for European investors
New empirical evidence
of diversification benefits
Cay Oertel
International Real Estate Business School,
University of Regensburg, Regensburg, Germany
Thomas Gütle
US Treuhand, Munich, Germany
Benjamin Klisa
Deka Immobilien GmbH, Frankfurt, Germany, and
Sven Bienert
International Real Estate Business School,
University of Regensburg, Regensburg, Germany
Purpose The purpose of this paper is to analyze potential diversification benefits of American real estate
assets for European investors. Since European real estate yields are compressed due to several reasons,
including high market liquidity and low interest rates, investment managers seek opportunities to provide
attractive risk-return profiles for investors. Therefore, empirical proof for improvements to risk-return
profiles is highly necessary in the outlined market environment.
Design/methodology/approach The empirical study use s a classic mean-varia nce optimization
approach. In order to iso late potential diversification be nefits two investment environments a re compared:
first, an optimizatio n for the European invest ment horizon is carried o ut. Subsequently, the s ame
optimization is performed for European and American assets. For both scenarios, risk-return profiles are
obtained and compared.
Findings Two major findings can be stated: first, higher correlations between European and American
markets can be observed for the present data in comparison to older studies. Second, the mean-variance
optimization of solely European and then mixed European-American portfolios show improvements in
risk-return profiles for the latter. Thus, diversification benefits of American properties for European real
estate investors can be confirmed.
Practical implications The empirical study reveals diversification benefits for European investors. Thus,
the asset allocation of European investors could be affected by allocating capital toward the USA in order to
improve risk-return profiles.
Originality/value The value of the paper is a precise analysis of two markets, namely Europe as well as
the US. Thus, the paper isolates the practical implications for European investors, who are trying to improve
risk-returns profile by allocating capital toward the USA.
Keywords Portfolio diversification, Empirical study, Foreign real estate investment,
Real estate investment, Real estate risk management, Real estate asset allocation
Paper type Research paper
The diversification of real estate portfolios is a central topic in academic research as well as
for market participants. Real estate portfolios can typically be diversified by property types,
region, etc. Both, theoretical drivers and empirical studies, provide evidence of improved
risk-return profiles due to geographic diversification. Since European real estate returns are
heavily compressed, capital allocation seeks new investment opportunities to provide
attractive risk-return profiles.
Journal of Property Investment &
Vol. 37 No. 4, 2019
pp. 398-404
© Emerald PublishingLimited
DOI 10.1108/JPIF-03-2019-0039
Received 25 March 2019
Revised 4 April 2019
Accepted 5 April 2019
The current issue and full text archive of this journal is available on Emerald Insight at:

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT