"Geographical diversification still works but not at all times and not for all markets," said Daniel Piazolo, a director of DID Deutsche Immobilien Datenbank GmbH. Drawing on DID and IPD data, Piazolo argued that total returns in most western European countries, North America and even South Africa were highly correlated between 2002 and 2005, particularly in the office sector but also in retail property. He also showed that total returns in each of the country sectors covered moved broadly in line with each other.

This indicates some convergence among markets at a time when foreign investors are seeking a diversification of their portfolio to reduce risk. Diversification, as well as a search for higher yields, has been a key driver behind rising global real estate investment as fund managers have sought to stabilize returns in their portfolios by spreading their risk across different markets.

Research by DTZ indicates a five-fold increase in international real estate investment in the past seven years, and Jones Lang LaSalle estimates more than one-third of the nearly half a trillion dollars invested in direct commercial real estate in 2005 was from foreign investors. In Europe, the proportion is more than half.