European real estate in asset allocation:

New world, new model

Lors de la constitution d’un portefeuille immobilier, les choix de diversiWhen creating a real estate por t folio, diversification choices are strategic in seeking to have a positive impact on the profitability and/or risk of the portfolio.

allocation d'actif immobilier

We have sought to analyse the optimal allocation between countries and asset classes with respect to the desired strategy and existing mechanisms.

Faced with the multitude of possible options and investment strategies it may be useful to:

  • identify the variables that are likely to determine the performance of a real estate investment;
  • understand the role of risk in the optimal portfolio structure;
  • use our SMARRT© model to defi ne an optimal portfolio allocation as a function of the risk/ return relationship.

During the decade from 2012 to 2021, relative international geopolitical stability and quantitative easing policies generated abundant, low-cost liquidity, which was advantageous for real estate. However, the emergence of a paradigm shift, most notably in inflation or policy rates, cannot be ignored when defining a high-performance allocation strategy in the future, given current uncertainties.

There are generally considered to be fi ve major asset classes: real estate, equities, bonds, commodities and currencies. The disparities between determinants of returns from each of these main classes pledge for the creation of a diversified portfolio to manage risk and generate performance. The underlying principle linking risk and return is as follows: in general, the higher the return, the greater the risk. From a financial point of view, risk can be considered as the probability of a loss at a given moment, which is the amplitude of the price variation between two transactions.

The profitability of an investment has two components. The first relates to the flow of income paid over the period for which the asset is held, whilst the second is the capital gain, equal to the difference between the purchase price and the disposal price.

These components are essential in understanding the risk that should be accepted by an investor. It is on the basis of this evaluation that one can assess the creation of an optimal portfolio.

The team

Daniel While
Daniel While Research, Strategy & Sustainability Director

Henry-Aurélien Natter
Henry-Aurélien Natter Research Manager

Adrien Isidore
Adrien Isidore Economist Statistician

You may also like

European residential, the great acceleration
  • Thematic study

European residential, the great acceleration

09/12/2021 By Henry-Aurélien Natter

The purpose of this report is to aid understanding of the issues in residential investment in the current climate, whilst noting the fundamentals that persist despite the crisis, and to identify sources of future growth in specific markets.

Read the report
Healthcare real estate in a post-covid world
  • Thematic study

Healthcare real estate in a post-covid world

06/07/2021 By Henry-Aurélien Natter

The ongoing pandemic crisis has highlighted the need to expand healthcare real estate infrastructure. Investment in healthcare infrastructure is at the intersection of major social and environmental challenges.

Read the study
Real Estate and lifecycle : Investment strategies for new residential markets
  • Thematic study

Real Estate and lifecycle : Investment strategies for new residential markets

09/10/2020 By Henry-Aurélien Natter

Life is a cycle and residential property must meet individuals’ expectations based on their needs at each moment of their lives. In a multi-generational society, housing must therefore adapt to the needs of several generations in student, single- and multifamily, and senior housing and nursing homes.

Read more