Potential Reasons to Invest

1. Potential Yield Enhancement, with Inflation Protection 

Core real estate has historically served as an attractive source of income, providing yields in excess of stocks and bonds.  This yield has outpaced inflation over the past 30 years.  Overall rents have kept pace with, or exceeded, broader inflation (but can vary considerably across sectors and markets, based on market-specific supply and demand factors).  Commercial real estate asset prices have also historically moved with inflation, given the impact of construction costs (in the form of labor and materials) and changes in land values on replacement costs.

Real Estate Income & Inflation (1995 – 3Q 2024)

Click here to access data for the line chart listed above.

Sources: FRED, NCREIF Property Index (NPI); As of March 31, 2024. Indexed, 1994=100. CPI refers to Consumer Price Index for All Urban Consumers: All Items Less Food and Energy. Past performance does not guarantee future results, which may vary

2. Differentiated Returns

Real estate has the potential to enhance a portfolio’s risk-adjusted return by offering differentiated, less correlated sources of return.  Underlying real estate supply and demand drivers, and the structure of underlying leases, introduce market-, sector-, and asset-specific considerations that may help offset some sensitivity to broader economic factors.  These dynamics have helped mute correlations to public equity and credit markets – particularly for private real estate.  Value-add and opportunistic real estate strategies are primarily the purview of private markets and offer exposures not easily accessed in public markets. Core private market strategies have featured lower correlations than their public counterparts, REITs, whose inclusion in broad equity indices has made them sensitive to broad equity market dynamics. 

Real Estate Correlation

Source: Refinitiv.  Private real estate index courtesy of Cambridge Associates.  Global equities proxied by the MSCI World index, Global High Yield proxied by the Barclays Global HY Index, Public Infrastructure proxied by the FTSE Global Infrastructure Index, Public Real Estate proxied by the FTSE EPRA Nareit index.  15 years of quarterly data through December 2023.  Past performance is not indicative of future results.

3. Capitalizing on Secular Megatrends

By its nature, real estate is tied to global demographics and secular megatrends, as well as to their local expressions. As such, we believe segments of the real estate market stand to benefit from demographic, sustainability, technology and geopolitical shifts to support evolving space demands.

Real Estate Opportunities Within Secular Megatrends

Technology

• Data centers
• Distribution facilities to support e-commerce demands
• Life sciences and lab facilities

Resource Usage

• Sustainable buildings and facilities to meet evolving tenant preferences and regulations

Trade Realignment

• Logistics assets (e.g., warehouses) for reconfigured supply chains

Demographics

• Rental housing to support demographic shifts and population trends
• Hospitality and retail to aligned to global consumer trends

Real estate investments involve risks which include, but are not limited to, fluctuations in the real estate markets, the financial conditions of tenants, changes in building, environmental, zoning and other laws. In addition, real estate assets may be leveraged, which could have significant adverse consequences to the assets and therefore an investment vehicle