Abstract
Executive Summary. Many real estate market classifications for portfolio diversification fail to reflect market fundamentals. Research has attempted to rectify this anomaly—no easy task given property's heterogeneity—but investment strategy and research continue to be dominated by traditional property classes. Two such classifications in the United Kingdom are examined in this paper. Responding to appeals in the literature, local markets are grouped using cluster analysis and rental changes, a key dimension of and underlying influence on total returns. The resulting distribution of markets is compared to the traditional U.K. regional classification and a broader super-regional classification. In the retail sector, neither grouping is appropriate and attention must be focused on alternative market characteristics. In the office sector, the super-regional grouping is appropriate, reflecting user-group locational strategies.
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