Potential benefits of real estate in DC plans

Potential benefits of real estate in DC plans

7 minute read

March 2022

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REITs offer a long track record of benefiting participants through diversification and long-term total return, characteristics that may be well suited to meet the needs of defined contribution plans.

An evolving asset class: today’s REIT market is driven largely by alternative property types

U.S. REIT sector breakdown, 2000 vs. 2022

US REIT sector breakdown
DC REIT adoption disconnected from other retirement plans

Average real estate allocation

Average real estate allocation
Asset class correlations create potential diversification benefits

25-year correlation matrix

25-year correlation matrix
Since the beginning of the modern REIT era in 1991, U.S. REITs have returned 11.6% per year—0.7% more than the S&P 500 and 6.1% more than U.S. bonds

Growth of $100 and annualized returns since 1991

Growth of 100 and annualized returns since 1991
Adding real estate to a portfolio has historically resulted in higher returns, similar volatility and better risk-adjusted performance

2000–2022

Annualized Total Return Standard Deviation Sharpe Ratio
Country and sector performance dispersion has the potential to benefit active managers

Total return in USD

Total return in USD

FURTHER READING

Capital Market Assumptions

Capital Market Assumptions

March 2025 | 22 mins

Expected returns for the next 10 years amid elevated inflation and resilient global growth

The drivers of listed real estate’s strong start to the year

March 2025 | 9 mins

The absolute performance of listed REITs, their relative performance to the broader market and the drivers of the positive returns.

Exploring the lead-lag relationship of listed and private real estate

Exploring the lead-lag relationship of listed and private real estate

February 2025 | 4 mins

Private real estate returns in fourth quarter 2024, the lead-lad relationship with listed REITs and the shifting performance of private market property types. This month, we are digging into the performance of the NCREIF ODCE index. Many institutional investors are benchmarked to this private CRE index, which makes it an important market barometer.

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