NY-LON: Does a Single Cross-Continental Office Market Exist ?

1: Introduction A large literature has developed that has examined the diversification strategies most suited to a real estate portfolio. Much of this debate has centred on the relative attractiveness of regional or sector diversification. However, more recent evidence would suggest that improved diversification benefits are not purely driven by either the sector or region in which a property is located. A number of recent papers have examined the potential for diversifying on an economic basis (e.g. Goeztmann & Wachter, 1995, Hamelink et al., 2000, Hoesli et al., 1997). The rationale behind examining the economic basis is that different markets have different economic driving forces. This means that similar localized systematic effects will affect all sectors in a single market. In addition, pure geographic distance doesn’t guarantee diversification if the markets invested in have similar economic driving forces. Not only does this apply within a national market but also at an international level.