The diversified portfolio: Asia Pacific investors can alter their risk and return profiles by adding London and New York City to their portfolios
London and New York City have seen increasing levels of interest from Asia Pacific investors. In 2012 and the first half of 2013, buyers with Asia Pacific sources of capital spent US$9.6 billion in London and US$3.2 billion in New York City, making up around 10–20 percent of the capital invested each year in direct real estate in those cities.
How do these two cities stack up against key Asian investment destinations? And likewise for UK- and US-based investors, how do Asia Pacific cities measure up? Do investors get the diversification they expect from adding London and New York City to their domestic real estate holdings, or do all key gateway cities now behave in the same way?
Using office total returns data from 1998 to 2013, our findings show that including London and New York City in a portfolio — with five key Asia pacific cities all weighted to the same level — gives a better return, at 10.5 percent, for the same level of volatility compared with the Asia