After six decades in the real estate business, Hines views diversification as of similar importance to cash flow, lease performance, and location, location, location because it is still not possible to reliably call market tops or bottoms. Without diversification, investors may increase their risk1 of being overweight in a poorly performing region, sector, or asset class.
Diversification Matters
Why consider a diversified real estate portfolio today?
1.NCREIF and Hines Research, January 1, 1984 through December 31, 2022. As measured by the Sharpe Ratio – a financial calculation describing how much excess return is received for the extra volatility of holding a riskier asset.
Decades of Data Don't Lie
Decades of data show portfolio diversification reducing risk, but there are many ways to implement this strategy (by region, sector, market cap, style box, issuer, industry, credit quality, geography, asset type, etc.). Real estate is a complex system with thousands of variables capable of influencing outcomes. For us, true diversification must be regional, across sectors and asset classes, particularly given the risks inherent in the U.S. market - take a look:
Professional Management May Assure Effective Diversification and Cushion Downside
Hines proprietary research data shows diversification across U.S. regions, sectors, and asset classes is best when combined. Real estate investing can be complex, but we believe professional management can provide smart diversification and downside protection.
Download the full paper to learn five reasons why real estate diversification matters:
Disclaimer
The content herein and in the report is provided for informational purposes only. Nothing above or in the report constitutes investment, legal, or tax advice or recommendations. Such content should not be relied upon as a basis for making an investment decision and is not an offer of advisory services or an offer to invest in any product or asset class. It should not be assumed that any investment in an asset class described herein will be profitable. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice. Opinions or beliefs expressed in these materials may differ or be contrary to opinions expressed by others. Certain information above and in the report has been obtained from third-party sources. Hines has not independently verified such information.