Style Factors for Private Real Estate—Beyond Property Type and Location

Abstract

For many real estate investors, property-type and geography segmentations are the primary lens through which they measure and manage their portfolios. Whether it is defining allocations, constructing benchmarks, attributing performance, forecasting or modeling risk, segmentations built on property type and geographical classifications play an important role. In an analysis of over 26,000 UK properties between 2002 and 2022, however, the authors find that traditional property-type/geography segmentations explained an average of just 20% of asset-level total return variation. Testing six potential real estate style factors in a cross-sectional multifactor model, they were able to explain an additional 8% of asset-level variation, suggesting that real estate factors could play a role in helping investors manage their portfolios more systematically.