Investors in relatively large real estate markets often claim that they have enough investment product which exists to an adequate depth, that a nationally spread portfolio provides them with sufficient risk reduction and diversification. However, while large domestic markets can offer many opportunities to diversify across individual buildings, we demonstrate in this paper that international markets offer considerably more advantages than most large mature countries can bring domestically focused investors.
Importantly, our analysis is differentiated from other work in this area as we study investment returns for individual cities. Many other studies explore diversification opportunities at national levels, but in reality real estate investors will not often be able to reach a true national coverage. Rather they will be exposed to a selection of cities. So, instead of studying what the UK could mean to a US investor, we analyse what London and Manchester could mean to an investor active in New York and Los Angeles real estate. And in addition we explore whether Los Angeles would help to diversify New York exposure and whether Manchester would help diversify exposure to London. Furthermore, we discuss how investors constrained to their home market ignore the vast majority of the investable universe and may miss investment opportunities in parts of the world that can generate substantially more growth. One reason for this is that despite the globalisation of economies and financial markets, real estate markets are not fully synchronised over time and offer opportunities for international diversification and cycle timing. Finally, when investing internationally, investors have a much more diverse palette of risk and return from which to colour their investment portfolios.
Source : CBRE Global Investors