REITs Outperform Unlisted Real Estate Investments Over 22 Years

The data is conclusive, equity REITs outperformed unlisted real estate investments over a more than two-decade period, delivering higher returns for pension funds, according to research.


REITs are the democratization of commercial real estate as an asset class. They don’t have to pay corporate taxes, but they do have to pay out at least 90% of their taxable income to shareholders as dividends. Shares of REITs can be purchased through an exchange just like any other stock.

Now, the latest research from CEM Benchmarking’s 2021 study (PDF), sponsored by Nareit, provides a comprehensive look at realized investment performance across asset classes over a 22-year period (1998-2019) using a unique dataset covering over 200 public and private sector pensions with nearly $3.6 trillion in combined assets under management. One of the unique benefits of the CEM dataset is that it provides the actual realized performance of the assets chosen by plan managers and trustees. The 22-year study reveals allocations, returns, volatility and risk-adjusted performance of 12 asset classes.


  • REITs had the second highest average annual return of the 12 asset classes covered.
  • REITs had a low correlation with equities.
  • REITs had the highest non-fixed income risk adjusted return.


Over the 22-year period covered by the study there are striking differences in performance across asset classes. The figure below summarizes average annual net returns and expenses for the 12 asset classes.

  • Listed equity REITs had the second highest average annual net return over the period, 10.7%.
  • Unlisted real estate produced average net returns of 8.7% over the period, nearly 200 basis points less than REITs.
  • The two worst performing asset classes were hedge funds/tactical asset allocation (TAA) strategies and U.S. other fixed income. U.S. other fixed income however includes cash.


The study computed correlations of annual returns among the 12 asset classes. The correlation table below summarizes some key correlations between broad equities, REITs, and unlisted real estate. As highlighted in green, REIT and unlisted real estate returns were highly correlated when illiquid returns are adjusted for reporting lags. The correlation is measured as .84. The high correlation is not surprising given the similarities in underlying assets.

  • As highlighted in dark blue, REIT and unlisted real estate returns had relatively low correlations with bonds and listed equity returns. These relatively low correlations reflect the well known diversification benefits associated with the real estate asset class, whether REITs or unlisted real estate.

Volatilities and Risk Adjusted Returns

The study also compared volatilities and risk adjusted returns using the Sharpe ratio across asset classes.

The data are summarized below.

CEM 2021 Chart 4
  • Two fixed income asset classes had the highest Sharpe ratios reflecting their extremely low volatilities albeit modest returns.
  • Outside of fixed income, REITs had the highest Sharpe ratio measuring .45, reflecting their high returns and just above average volatility. Unlisted real estate had a much lower Sharpe ratio measuring .36, reflecting lower returns and comparable volatility to REITs.
  • After adjusting for valuation lags, the study found that REITs and unlisted real estate had comparable volatilities. REITs and unlisted real estate had the 4th and 6th most volatile net returns with measured volatilities of 18.9% and 17.9% respectively. As with correlations, the similarity in volatilities is not surprising given that REITs and unlisted real estate have the same underlying assets.
  • After adjusting for valuation lags, private equity was by far the most volatile asset class.

The study also compared volatilities and risk-adjusted returns using the Sharpe ratio across real estate ownership styles. The data are summarized below.

As the figure indicates, REITs have comparable volatilities to and provide better risk adjusted returns than any style of private real estate.


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