Purpose – A quite significant body of research regarding the effects of segment structures in direct property returns is available for the USA and the UK markets. There is also some research regarding the broad European context and for some individual countries, like Italy. However, this subject has not been specifically addressed for the Portuguese and Spanish property markets. The central aim of this research is the examination of the effectiveness of the main segmentation structures currently used in the Portuguese and Iberian property markets. Despite this being a starting point for most of the analysis and decision making in property portfolio construction, up to date and to the authors' knowledge, there is absolutely no research on this specific subject for these markets. Design/methodology/approach – Subclass annual returns available from the 2005 IPD Iberian Digest were used in a cross‐sectional approach to test the segmentation structure of the IPD indexes. Two different analysis scopes were considered: the Portuguese market alone and the Iberian market as a whole, in a total of six segmentation structures tested for significance regarding total returns, capital returns, and income returns, thus resulting in 18 different evaluations using one and two factor analysis of variance tests. Findings – Results show that the structures based on sector differentiation are generally significant both for Portugal and within an Iberian context and that regional spread does not condition property returns in the periods under study. This supports the argument of sector diversification in both situations, similarly to previous findings for the UK market. Addressing return components, results show that only for income returns do most of the structures describe enough systematic patterns to be worth using, while capital gains seem to be less sensitive to segmentation factors. Originality/value – This is the first paper regarding effectiveness of segment structures in the Portuguese and Iberian markets. Also the consideration and differentiation of the analysis for return components is original and found to be rather important, despite being apparently disregarded in related literature.
Journal of European Real Estate Research – Emerald Publishing
Published: May 11, 2010
Keywords: Property; Market segmentation; Diversification; Portugal; Spain