Equity REITs outperformed unlisted real estate investments over a more than two-decade period, delivering higher returns for pension funds, according to research released Monday.
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REITs outperformed private real estate by nearly 2.7 percentage points per year on average, and also provided better risk adjusted returns.
The new study, which was sponsored by Nareit and conducted by research firm CEM Benchmarking, had access to a 21-year data set (1998 – 2018). It analyzed the allocation and performance of assets in more than 200 public and private sector pensions with nearly $3.9 trillion in combined assets under management.
“CEM Benchmarking’s study shows the striking disparities between the returns of REITs and unlisted real estate,” Nareit’s Executive Vice President of Research and Investor Outreach John Worth said in a statement.
CEM compared returns, correlations and volatilities of four key private real estate ownership styles with varying risk profiles and costs — internally managed direct, value added/opportunistic, core funds and funds of funds — and concluded that REITs outperformed private real estate irrespective of ownership style.
At the same time, the analysis showed that REITs had the lowest allocation of any asset in the study. Over the 21-year period, pension funds’ allocations to REITs were flat, while those for private real estate increased, especially value-add/opportunistic funds.