Analysis of the performance and diversification benefits of the South Africa commercial real estate market

The South Africa real estate market is an important African real estate market, having attracted considerable investor interest in recent years; particularly from domestic real estate investors. This paper highlights the risk-adjusted performance and portfolio diversification benefits of commercial real estate in South Africa in a mixed-asset portfolio over the 1996-2016 period, as well as in a post-GFC context. The risk- adjusted returns analysis demonstrates a clear distinction of the performance of commercial real estate in South Africa, with both direct and listed real estate providing competitive risk-adjusted performance compared to stocks and bonds. Importantly, both direct and listed real estate contributed significantly in mixed-asset portfolios due to improved portfolio diversification benefits since the GFC. The strategic real estate investment implications are also highlighted.