"Geographical diversification still works but not at all timesand not for all markets," said Daniel Piazolo, a director of DIDDeutsche Immobilien Datenbank GmbH. Drawing on DID and IPD data,Piazolo argued that total returns in most western Europeancountries, North America and even South Africa were highlycorrelated between 2002 and 2005, particularly in the office sectorbut also in retail property. He also showed that total returns ineach of the country sectors covered moved broadly in line with eachother.

This indicates some convergence among markets at a time whenforeign investors are seeking a diversification of their portfolioto reduce risk. Diversification, as well as a search for higheryields, has been a key driver behind rising global real estateinvestment as fund managers have sought to stabilize returns intheir portfolios by spreading their risk across differentmarkets.

Research by DTZ indicates a five-fold increase in internationalreal estate investment in the past seven years, and Jones LangLaSalle estimates more than one-third of the nearly half a trilliondollars invested in direct commercial real estate in 2005 was fromforeign investors. In Europe, the proportion is more than half.