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European investors should invest up to 30% in real estate in their quest for optimal asset
allocation, according to a study by the Center for Research on Pensions and Welfare Policies (Cerp) suggests.
The study, “Investing for the Long-Run in European Real Estate: Does Predictability Matter?” said the gains from real estate investments were of “ first order magnitude.”
Cerp’s Carolina Fugazza and Giovanna Nicodamo, as well as Massimo Guidolin at the Federal Reserve Bank of St Louis, joined forces for the paper.
The study was published for long-term, risk-averse, European investors keen on diversifying among equities, bonds, real estate and cash investments. The researchers looked at both the risk-prone Anglo-Saxon model, which gives bonds a “negligible weight”, and the “German-French pattern” dominated by bond allocation and with investment horizons of five to 10 years.
“We find that real estate ought to play a significant role in optimal portfolio choices, with weights between 10% and 30% in most cases,” the researchers concluded.
Real estate investments make sense in both absolute terms and in welfare terms, the paper argued, pointing out that the cost of avoiding them was at least 1% in returns.

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