We're pleased to share the second paper in the One Real Estate Universe series from INREV and EPRA: ‘Measurement, Performance and Portfolio Construction.’
Building on the foundations of the first report, this edition examines how listed and non-listed real estate can be assessed on a common basis, compares their performance and risk characteristics across major and alternative asset classes, and explores their role within multi-asset portfolios.
Its central finding is that listed and non-listed real estate are complementary instruments tuned to the same market. Across optimisation methods, the data support a material allocation to real estate held through both routes.
Key highlights:
- The two routes move through the same property cycle, with listed prices leading non-listed valuations by about two quarters. The volatility gap between the two routes narrows to around 1.8 once the non-listed series are desmoothed.
- A risk-based portfolio construction supports a total real estate allocation of 19.5%, well above the average current institutional target of 12.5% reported in the ANREV/INREV/PREA Investment Intentions Survey.
- Non-listed real estate’s distinctive contribution is a low, stable correlation with other asset classes that lowers the total risk of a multi-asset portfolio. In fact, it has the lowest average cross-asset correlation of any asset class over the recent decade.
- Listed real estate is a liquid, tactical instrument, a strategic long-horizon holding and a source of diversification within the real estate allocation.
INREV would like to thank Dr Alexandra Krystalogianni for her work in producing this paper.
Download the full paper below.