GREIX portfolio analysis: regional diversification pays off
Residential real estate in German cities is not a homogeneous asset class. Properties differ substantially by location, market phase, and risk—and that creates return opportunities. A new portfolio analysis by the German Real Estate Index (GREIX) shows: investors who spread their real estate portfolio across multiple German cities between 1995 and 2025 could historically achieve a final value around 27 percentage points higher than with a market-weighted portfolio, at comparable risk.
The GREIX analysis delivers three central findings. First, a market-weighted portfolio—one that weights cities according to their share of total transaction volume—provides a sensible starting point, as it already offers a solid balance between capital gains and risk. Second, the analysis shows that even relative to this broad benchmark, historical optimization potential existed. Third, the composition of optimal portfolios is not stable: it shifts substantially with the market phase. Investors who base decisions solely on a single boom or bust risk misallocating capital when market conditions change.
"Our finding is not surprising: broad diversification beats concentrating everything on one city. But the right mix changes over time. Real estate investors therefore need both: spatial diversification and a sense of which market phase they are currently in," says Jonas Zdrzalek, GREIX Project Lead at the Kiel Institute for the World Economy.
Diversification pays off
The analysis draws on GREIX data for apartments in German cities since 1995. Using a classic Markowitz approach—which weighs return against risk—efficient portfolios were constructed and compared with a market-weighted benchmark. The analysis considers capital gains only and does not capture total returns including rental income. It also assumes, for simplicity, that each city already represents an internally diversified local real estate portfolio.
The result: the market-weighted portfolio, with an annualized price appreciation of around 3.21 percent at 2.72 percent risk, already sits favorably in the return-risk space. The analysis shows, however, that at the same level of risk, an annual capital gain of around 3.56 percent would historically have been achievable. Over 30 years, that would have translated into a final value roughly 27.5 percentage points higher.
Efficient combinations shift with market phases
Since 1995, the price development of owner-occupied apartments in German cities has passed through clearly distinguishable phases: a sideways movement until end of 2009, a pronounced boom until end of 2021, and a correction phase since then. Behind the national aggregate are very different local trajectories. A location that proves to be a strong performer in the long term may not come out on top in every market environment.
During the period of stagnating prices from 1995 to 2009, more balanced mixes featuring cities such as Munich and Düsseldorf dominated. During the boom years from 2010 to 2021, optimal portfolios were strongly driven by Münster and Berlin. In the current correction phase since 2022, Chemnitz and Duisburg have come to define the composition of efficient combinations. This brief comparison makes one thing clear: winners in one phase are not guaranteed to come out on top in the next.
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Methodological note
The analysis is based on publicly available GREIX transaction price index data for apartments in German cities since 1995 and uses annualized rates of change calculated based on a four-quarter moving average (data as of February 5, 2026). The portfolios are based exclusively on long positions (no short selling), and transaction costs and rental yields are not considered.
About the GREIX
- What is the German Real Estate Index (GREIX)?
The German Real Estate Index (GREIX) is a publicly funded research project hosted at the Kiel Institute for the World Economy that aims to increase transparency in the German real estate market. To this end, GREIX regularly publishes updates on the development of sales prices (GREIX sales price index) as well as on the development of asking rents (GREIX rental price index). In addition to these price developments, GREIX publishes special analyses, for example on affordability or on price-determining factors such as location or energy efficiency. - What is the GREIX sales price index?
The GREIX sales price index is a real estate price index for Germany based on the sales price collections of the local expert committees, which contain notarized sales prices. It tracks the price development of individual cities and neighborhoods back to 1960 and is based on more than two million transaction data. The dataset can be used to analyze long-term trends in the real estate markets and to place current developments in a historical context. On greix.de, sales price indices for various market segments in currently 24 cities are freely available. The dataset will gradually be expanded to include additional cities. - What data and methods are used to create the indices?
Data collection is carried out by the local expert committees, which record all property transactions in full. Sales price analysis is conducted using state-of-the-art scientific methods and statistical techniques (hedonic regression method). The GREIX sales price index therefore represents the highest standard of scientific data quality.
