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Spatial Statistics Applied to Commercial Real Estate

  • Darren K. Hayunga
  • R. Kelley Pace
Article

Abstract

Portfolio theory shows that diversification can enhance the risk-return trade-off. This study uses the absolute location of commercial real estate property along with spatial statistics to address the inherent problem of determining geographical diversification based upon a set of economic and property-specific attributes, some of which are unobservable or must be proxied with noise. We find that commercial real estate portfolios exhibit statistically significant spatial correlation at distances ranging from adjacent zip codes to neighboring metropolitan areas. Given the common structure of dependence found in the data series, we discuss feasible strategies for obtaining diversification within direct-investment real estate portfolios.

Keywords

Spatial statistics Commercial real estate Portfolio diversification 

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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.Department of Finance and Real EstateUniversity of Texas at ArlingtonArlingtonUSA
  2. 2.LREC Endowed Chair of Real Estate, Department of Finance, E.J. Ourso College of Business AdministrationLouisiana State UniversityBaton RougeUSA

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