Private real estate has consistently demonstrated strong performance on a rolling 10-year basis, consistently outperforming US bonds and Treasury bills for over a decade. In our view, diversifying investments across both private and public real estate may help to achieve consistent performance with lower risk.

Consistency through cycles

Although real estate performance has been weak over the past two years, downturns have been rare historically. Since NCREIF began in 1978, total returns have been positive nearly 90% of the time. Historical data reveals that on a rolling 10-year basis, unlike US equities, private real estate has consistently posted positive returns over the past 30 years, as shown in Figure 1. On a rolling 10-year basis, private real estate has also consistently performed better than US bonds and Treasury bills over the past 23 years, except for a slight dip below US bonds in 2009 and 2010. Current market dislocation offers a rare opportunity to enter the private real estate sector at an attractive basis.

Figure 1: 10-Year Rolling Average Annual Total Returns by Asset Class

Figure 1 shows the 10-Year Rolling Average Annual Total Returns by Asset Class.

Source: NCREIF, Moody's, NAREIT, Bloomberg. Data through 4Q24. US private real estate data is represented by Open End Diversified Core Equity (ODCE) Index, US equity is represented by the S&P 500 Total Return Index, US bonds is represented by the Bloomberg US Aggregate Bond Total Return Index, and US REITs is represented by the All-Equity REITs Index from NAREIT. Past performance is not indicative of future results.

The figure illustrates that over the past two decades US private real estate has consistently delivered strong, stable returns compared to more volatile asset classes.

A hedge against inflation

Private real estate can provide stable and predictable cash flows. Rental income is the primary source of revenue for real estate investments, and as the price of goods and services goes up, rents tend to track closely. With inflation diminishing the value of money, increases in rent help preserve the value of income streams. Over the long-term, private real estate net operating income has kept pace with inflation.

Figure 2: Private Real Estate Net Operating Income Growth versus Inflation (Index, 1995=100)

Figure 2 shows the Private Real Estate Net Operating Income Growth versus Inflation.

Source: Bureau of Labor Statistics, NCREIF, Moody's Analytics. Data through 4Q24. Indexed same-store net operating income is calculated using the NCREIF Property Index. Inflation is the Consumer Price Index (CPI). Past performance is not indicative of future results.

The figure shows that over the long term, private real estate net operating income has consistently outpaced inflation, demonstrating its potential as a reliable hedge.

The growing role of emerging managers and specialist operators

Emerging managers, typically smaller or newer firms, are often characterized by their agility, willingness to explore new markets and ability to fill niche investment gaps. While larger firms tend to have a proven track record and experience in traditional sectors, emerging managers tend to specialize in specific markets and subsectors. With a growing emphasis on niche products that align with broader demographic and technological trends, emerging managers can fill the gap in capitalizing on specialized opportunities with greater expertise.

Established real estate investment firms have identified this gap and are increasingly partnering with or acquiring stakes in operators. These acquisitions are strategic moves to expand their portfolios into markets or property sectors with added expertise and scalability. By taking equity positions in operators, these firms can directly influence the management and performance of properties. Entity-level investing does however add complexity, dependency on operator performance, and longer investment horizons. Investors need to carefully evaluate the management team, business strategy, and exit options before committing capital to this structure.

The evolving role of REITs in real estate portfolios

REITs enhance portfolio diversification. They offer investors a quick way to gain exposure to a real estate-adjacent asset class without direct property ownership. Liquidity is one of the primary benefits REITs offer as they are traded on major stock exchanges, allowing investors to buy and sell shares quickly in response to market conditions or changes in investment strategy. Another advantage of REITs is their ability to generate income. REITs must distribute at least 90% of their taxable income to shareholders in the form of dividends. This makes them an attractive option for income-focused investors seeking regular and predictable cash flows.

Why REITs alone may not be enough

REITs are more correlated with stocks than with private real estate funds, as mentioned in our previous blog. In fact, a portion of a Public REIT’s price includes the value of the management company and its ability to add value. Private real estate funds, typically externally managed, rely solely on the performance of the real estate alone. Although REITs provide access to a broad spectrum of real estate sectors and geographic regions, they are also more volatile. As a result, investors can achieve stronger consistent returns at lower risk by diversifying across both private and public real estate. The advantages are further enhanced when asset allocation is customized for the specific plan participant, as seen with target-date funds commonly utilized in defined-contribution plans. Incorporating private real estate alongside public REITs has been shown to mitigate sequencing risk, where the individual's risk tolerance adjusts as they approach retirement.1, 2

1. Defined Contribution Real Estate Council (DCREC), 2024, .
2. Defined Contribution Real Estate Council (DCREC), 2014,

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