European real estate in asset allocation:
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.
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.
With a university education in local economic development, Daniel While began his career as business establishment consultant to local authorities. In 2006, he joined the Institut de l’Epargne immobilière et Foncière as analyst, and specialised in the world of unlisted real estate funds (SCPIs and OPCIs for France).
He is co-author of the book Les OPCI published by Delmas (September 2008). He joined Primonial REIM in 2017, where he held the position of Development Director, then Research & Strategy Director from 2019.
Henry-Aurélien Natter joined Primonial REIM as Research Manager in January 2018. He has the mission of developing the analyses of the Research & Strategy Department on the real estate markets, the economy and capital in France and in Europe.
Henry-Aurélien Natter began his career at Les Echos Etudes (formerly Eurostaf), then at C&W (formerly DTZ), and lastly at BNP PRE, where he acquired solid and varied experience in real estate research, strategy and finance. He is qualified with an AES degree in Business Management, a Masters Decree in management and SME management, and an International Master in commerce and marketing.
After a successful internship in Primonial REIM France's Research and Strategy team, Adrien Isidore joined the team as an economist-statistician in late 2020. Adrien holds a Master's degree in Economics and Statistics from Panthéon-Assas.
Adrien Isidore decided to become an economist after an exchange program in Australia during which he worked in international research groups on various projects, giving him a taste for research. He also holds a bachelor's degree in economics and a university degree in mathematics and finance. His role is to propose innovative statistical tools and to write studies on different countries while providing support in the structuring of the department at the European level.
You may also like
- Thematic study
European residential, the great acceleration
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.
- Thematic study
Real Estate and lifecycle : Investment strategies for new residential markets
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.