The Prospects for Geographic Diversification in UK Regional Property Investment: Implications Derived from Multivariate Cointegration Analysis

This paper examines the short and long-term comovements among UK regional property markets over the period 1976-2001. The markets examined are London, Outer South-East, East Anglia, South West, East Midlands, West Midlands, Yorkshire and Humberside, North and North West. Multivariate cointegration procedures, Granger non-causality tests, level VAR and generalised variance decomposition analyses based on error-correction and vector autoregressive models are conducted to analyse short and long-run relationships among these markets. The results indicate that there is a stationary long-run relationship and significant long-run causal linkages between the various UK property markets. In terms of the percentage of variance explained other regional markets are generally more important than innovations in a given region, though this is not the case for the Outer South-East which is extremely segmented from the remaining markets, as is, to a lesser extent, the North and North West. This suggests that opportunities exist for portfolio diversification in UK regional property market.