Portfolio Diversification across U.S. Gateway and Non-Gateway Real Estate Markets

Martin Hoesli, Louis Johner* (Corresponding Author)

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)
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Using simulation analysis and property-level data for the U.S., we compare performance metrics for portfolios containing varying proportions of gateway and non-gateway markets. Risk-adjusted performance is found to be similar across types of markets. Gateway markets have higher appreciation and total returns, while non-gateway markets exhibit higher income returns even after accounting for capital expenditures. Downside risk appears to be slightly greater for gateway markets than for non-gateway markets; however, full drawdown and recovery lengths tend to be shorter for gateway markets. Systematic risk is found to be constant across types of markets. We show that discriminating between gateway and non-gateway markets is useful for mixed-asset diversification purposes, with the former type of markets appearing in risky portfolios and the latter in low-risk portfolios. By considering a large spectrum of performance metrics in a realistic investment setting, the results should provide investors with valuable information when allocating funds across gateway and non-gateway markets. The paper also provides insights regarding how best to define gateway markets.
Original languageEnglish
Pages (from-to)523-552
Number of pages30
JournalJournal of Real Estate Research
Issue number4
Early online date14 Apr 2022
Publication statusPublished - 2022

Bibliographical note

We are grateful to the Real Estate Research Institute (RERI) for having supported this project financially. Our RERI mentors, Martha Peyton and Greg MacKinnon, seminar participants at the Royal Institute of Technology in Stockholm (Sweden), the University of Neuchâtel (Switzerland), and the European Commercial Real Estate Data Alliance (E-CREDA) annual conference provided many useful comments and suggestions. Two anonymous reviewers provided very constructive remarks that have much improved the quality of the article. We also thank NCREIF for providing us with the data. Jeff Fisher was very helpful in helping us secure those data and provided many valuable inputs regarding the data as well as the method that NCREIF used until recently to produce its TBI. The usual disclaimer applies.

This article was supported financially by the Real Estate Research Institute.


  • Commercial Real Estate
  • Gateway Markets
  • Non-Gateway Markets
  • Diversification
  • Risk-Adjusted Performance
  • Downside Risk


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