Spatial Statistics Applied to Commercial Real Estate |
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| Authors: | Darren K Hayunga R Kelley Pace |
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| Institution: | (1) Department of Finance and Real Estate, University of Texas at Arlington, Box 19449, Arlington, TX 76019, USA;(2) LREC Endowed Chair of Real Estate, Department of Finance, E.J. Ourso College of Business Administration, Louisiana State University, Baton Rouge, LA 70803-6308, USA |
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| 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. |
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