European real estate in asset allocation:

During the decade from 2012 to 2021, relative international geopolitical stability and quantitative easing policies generated abundant, low-cost liquidity, which was advantageous for real estate. However, the emergence of a paradigm shift, most notably in inflation or policy rates, cannot be ignored when defining a high-performance allocation strategy in the future, given current uncertainties.

There are generally considered to be fi ve major asset classes: real estate, equities, bonds, commodities and currencies. The disparities between determinants of returns from each of these main classes pledge for the creation of a diversified portfolio to manage risk and generate performance. The underlying principle linking risk and return is as follows: in general, the higher the return, the greater the risk. From a financial point of view, risk can be considered as the probability of a loss at a given moment, which is the amplitude of the price variation between two transactions.

The profitability of an investment has two components. The first relates to the flow of income paid over the period for which the asset is held, whilst the second is the capital gain, equal to the difference between the purchase price and the disposal price.

These components are essential in understanding the risk that should be accepted by an investor. It is on the basis of this evaluation that one can assess the creation of an optimal portfolio.

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