The financial crisis and economic recession revealed the vulnerability of the real estate development branch as a result of volatility on the markets. The complex process of real estate development requires understanding of both the markets to be traded on and segments within these markets. The research investigates how a real estate development company is able to apply a diversification strategy in the development portfolio. The reduction in market risk as a result of portfolio diversification is calculated using the market risks of office, retail and residential developments, based on long term time series of the construction market, the space market and investment market. Market risk may be decreased by 18% - 20% by developing retail and residential space. Operational risks tend to increase when mixing multiple segments within a building or within a company.