SPLIT RETURNS ON A PAN-ASIA COMMERCIAL REAL ESTATE ASSET PORTFOLIO ALLOCATION

Abstract

In the aftermath of the Asian economic crisis, a series of terrorism events and epidemics, many Asian companies have leamt to diversify their operations beyond their primary markets and into other parts of Asia. Asset allocation is the process of diversifying from core assets into different asset types in order to achieve higher risk-adjusted returns. Countless research has been carried out to study diversification strategies by property type, geographical or economic region, size and the development stage. However, studies which hitherto have been done on real estate diversification strategies have not considered asset allocation through split returns, i.e. decomposing total returns into rental-yield returns and capital value returns. This study seeks to offer investors an alternative diversification strategy by diversifying into a pan-Asia commercial real estate market portfolio, comprising the office and retail sectors, through split returns for the selected Asian cities. A literature review precedes the analyses of the three different types of returns: rental-yield returns, capital value returns and the total returns. On a forward-looking basis, it is found that generally, all three types of returns offer immense diversification opportunities in the 16 selected pan-Asia commercial real estate sectors.