Public REITs outperformed personal actual property in outlined profit plans by practically 2% yearly over the previous 26 years, in accordance with a new examine by CEM Benchmarking.
The examine seems at realized efficiency over time. Reporting on personal actual property efficiency is lagged, so the examine covers 1998 by way of 2023, the most recent 12 months for which personal actual property efficiency is obtainable. The standardized dataset discovered REITs ship 9.72% in annual whole internet returns vs. 7.79% for personal actual property. (The dataset within the examine covers 462 private and non-private sector pensions.)
The one fashion of personal actual property funding that outperformed REITs was internally managed direct actual property, a method accessible solely to establishments or people with the assets to construct an in-house actual property workforce.
As well as, Nareit, the affiliation that represents REITs, launched its newest actively managed U.S. actual property fund trackerwhich seems at about two dozen lively actual property mutual funds and ETFs and gauges how these funds are shifting allocations between completely different property sectors and the way a lot these allocations diverge or align with the FTSE Nareit US Actual Property Index Sequence.
Within the fourth quarter, lively managers rotated again into information facilities. Healthcare (19%), telecommunications (14%), and residential (13%) declare the highest three spots for total lively fund allocations. Information facilities edged out retail for the fourth-highest allocation at 13%, in comparison with 12% for retail.
When evaluating allocation weights to the FTSE Index, lively funds are most obese to telecommunications (136%), adopted by information facilities (134%) and timberland (120%).
WealthManagement.com spoke with John Price, government vice chairman for analysis and investor outreach at Nareit, and Nicole Funari, vice chairman of analysis at Nareit, concerning the two items of analysis in addition to how REITs have fared amid latest fairness market volatility.
This interview has been edited for readability and size.
Wealth Administration: We’ve talked concerning the CEM examine earlier thanhowever are you able to speak once more about what it seems at and why it’s essential context for buyers?
John Price: It seems at U.S. pensions by asset class over 26 years of information. One of many causes we predict it’s impactful is that, moderately than being index-based, that is realized efficiency over time. It permits us to check private and non-private actual property on an adjusted foundation, apples-to-apples foundation.
REITs outperform personal actual property by 172 foundation factors yearly and once you standardize the information—taking the time lag that personal actual property reporting has and modify again for that, you discover the distinction widens to 193 foundation factors.
The examine additionally provides a take a look at implementation fashion. The one personal technique that outperforms REITs is internally managed direct actual property, which is utilized by solely a small proportion of plans. There’s a big diploma of illiquidity and dedication to particular property sorts required.
It’s additionally attention-grabbing that REITs and direct are the 2 best-performing as a result of these are two varieties of funding that aren’t on a fundraising cycle. They’re on a capital allocation cycle, so I don’t suppose it’s a coincidence that that these come out because the best-performing.
WM: And what’s the worth of trying over such a protracted timeline with this report?
JW: The long-term developments proceed to be the identical. REITs bounce round 200 foundation factors per 12 months every time the examine is up to date. That’s not trivial. And that unfold holds up even by way of some durations that had been powerful sledding for REITs. This consists of 2022 and 2023, which was a interval of rising charges and REIT underperformance total, however they nonetheless outperformed personal actual property.
WM: This might additionally appear to dovetail with one other concept that we’ve talked about earlier than of how buyers can use REITs as a “completion” play to realize entry to sure property sorts which may be more durable to entry by way of personal methods.
JW: Once I take a look at the 2 best-performing methods, as direct and REITs, they pair very properly. You possibly can have direct in some sectors and use for all the things else use REITs to get entry to.
As well as, the truth that REITs carried out effectively on a risk-adjusted foundation is an attention-grabbing, supplementary level. One of many questions we get is whether or not REITs have greater volatility than personal, and whether or not you’ll be paid for that volatility. This confirms that the returns you’re seeing compensate for the extra reported volatility.
WM: Pivoting to the most recent lively managed tracker report, what stands on the market?
Nicole Funari: Quite a bit stayed the identical. We see the identical high three segments of healthcare, telecom and residential. We additionally noticed a rebound in information middle allocations. There had been some slackening off within the earlier quarter, however there was a biking again and it had the biggest quarterly acquire, over 1 proportion level. The burden in funds relative to the FTSE index is again as much as 134%.
We additionally noticed some actions in a number of the smaller sectors. Specialty REITs and timberland had been up. And we’ve seen a little bit of a withdrawal from gaming previously few quarters.
Of conventional property sorts, retail stays regular and is underweight in comparison with the index weight (75%). Residential moved again to its index weight (106%). There’s been a rebound in workplace (112%) and a pullback in industrial (76%).
However the massive story is the information middle motion.
JW: Remember that information facilities ended 2025 down 14%. Managers are seeing it as a shopping for alternative. And they’re discovering the REIT information middle method—which is growth and actualized rental revenue—is an interesting funding proposition.
WM: One other story for the early a part of 2026 has been a brand new bout of market volatility. How have REITs been weathering that?
JW: REITs are having an ideal 12 months thus far. One of many issues we talked about in our year-end outlook, was twin divergences—the divergence in REIT valuations relative to non-public actual property and the divergence the broader equities market. Whereas multiples expanded dramatically for the broader market, for REITs that they had moved sideways.
So over the primary seven weeks of 2026 have been very a lot per closing that divergence with the equities market. The REIT index is up about 9% year-to-date in contrast with the S&P 500 at 0.4%. In January, the all-equity REIT index was up greater than 3%. And thus far, month so far in February, REITs are up greater than 5.5%.
It’s additionally been very broad-based when it comes to efficiency. The one two sectors which might be in adverse territory are places of work, the place there’s been a little bit of a retrenchment, and residential, which is down simply barely, lower than 0.5%. Information facilities, in the meantime, are up greater than 20% year-to-date, by far main the pack.
WM: I’m unsure if it’s additionally too untimely to speak about this, however is there any fallout from the strikes to ban institutional possession of single-family housing?
JW: Nareit has been making the purpose that housing affordability is pushed by provide. The answer to the housing market is to extend provide. We’ve tried to make it clear that we’re joyful to work on options to extend the general provide.
Extra folks have come to know that single-family rental corporations are literally serving to improve provide. The overwhelming majority of properties they’re including to their portfolios are actually build-to-rent. It’s a distinct enterprise mannequin than one pushed by buying massive portfolios of present single-family properties.
