The current real estate cycle is following a familiar script (Exhibit 1). After declining well ahead of private values, listed REITs have risen sharply from their October 2023 lows. Meanwhile, unlevered private real estate values have notched three consecutive quarters of modestly positive total returns after repricing by approximately 20% over the prior seven quarters. We anticipate modest to moderate gains over the next 12–18 months before accelerating more meaningfully. Since the ODCE Index’s 1978 introduction, once private values turn positive, the momentum typically continues, with the shortest run having lasted more than two years.

The return dispersion displayed over the last several years is not surprising given that listed REITs historically lead private real estate in both downturns and recoveries. As listed securities, REITs reflect future events quickly. In contrast, private real estate values adjust much more slowly as declining transaction volumes can limit transparency, while appraisal valuations are inherently lagged.

Some investors may consider the lower volatility of private investments a feature that smooths returns (compared with the “bug” of REITs’ real- time pricing and higher volatility). However, the dispersion in returns, along with well-publicized redemption queues in private real estate funds, illustrate that the illiquidity of private investments makes it difficult for plans to manage their real estate allocations and capital pacing. This can be especially true early in the cycle, when private investors may have difficulty putting cash to work—in contrast to REITs, which can be purchased in size daily on a stock exchange.

Cumulative total returns from 1Q 2020

At March 31, 2025. Source: NCREIF, Bloomberg, Cohen & Steers.
Past performance is no guarantee of future results. The information presented above does not represent the performance of any fund or other account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance listed above. Listed real estate represented by the FTSE Nareit All Equity REITs Index. Private real estate represented by the NCREIF Fund Index – Open End Diversified Core Equity Index (net). See endnotes for index definitions and additional disclosures.

We believe there are compelling reasons to own both listed and private real estate today. First, the impact of rising interest rates—a key impediment in recent years—no longer dominates the outlook. With rates stabilizing or even poised to decline, the financing environment is becoming more predictable, which supports valuations and improves the outlook for leveraged returns—clarity that can help reaccelerate transaction activity and investor confidence.

Second, commercial real estate is relatively insulated from global trade risks, including tariffs and supply chain disruptions that continue to affect other areas of the economy. Real estate’s domestic focus and long-term lease structures provide a buffer against global economic volatility, making it an attractive option for investors seeking stability.

Fundamentals also remain strong. Limited new construction in many sectors has helped keep supply in check, supporting healthy occupancy rates and rent growth (Exhibit 2). Rising materials costs could further limit what is expected to be constrained supply. This disciplined development environment, combined with ongoing demand, is driving continued net operating income (NOI) growth. Balance sheets are also healthy, with REIT loan-to-value (LTV) ratios of around 35%, well below where they stood in 2008.

After recent market dislocations, valuations are now well below long-term averages. For example, U.S. REITs are trading at a historic discount to equities—with a P/E multiple 3.8x lower than that of U.S. stocks, compared to a typical long-term discount of just 0.6x.

This creates a rare opportunity for investors to acquire high-quality assets below intrinsic value. As a result, we expect 2025 to be a strong vintage year for investors with dry powder.

Construction starts vs. 10-year average (% of inventory)

At December 31, 2024. Source: CoStar, Cohen & Steers.
Past performance is no guarantee of future results. Data represents the average of four-quarter construction starts as a percentage of inventory by sector. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend might begin.

This generational reset in commercial real estate prices is an opportunity for institutional investors to look more closely at their real estate allocations. We believe the market environment is setting up for strong vintage-year returns for 1) private real estate funds with fresh capital and 2) listed REITs that will be able to take advantage of their favorable access to capital and cheaper debt to net acquire assets for the first time in more than a decade. Amid this shift, however, we recognize that old ways of thinking can be hard to change. Listed REITs typically take a backseat to private real estate in allocation decisions, despite REITs’ long history of outperforming private real estate (Exhibit 3).

This mindset occurs despite REITs generally employing relatively low-risk core strategies focused on high-quality, stabilized properties with modest leverage. The reluctance is also notable given that listed REIT mandates can typically be invested/liquidated quickly, in contrast to private real estate, where transactions can take time and potential withdrawal limits exist with private real estate funds.

One oft-cited reason that investors favor private is that listed REITs can be highly correlated with equities in the short term and are, therefore, more volatile. However, over longer time frames, listed REIT returns (as with private real estate) are driven by the cash flows and growth profiles of the underlying property holdings.

Indeed, while year-over-year returns of listed REITs are only 15% correlated with private real estate on an as-reported basis, those correlations jump to nearly 60% when private real estate returns are lagged just three quarters.

Listed and private real estate annualized returns (%)

At March 31, 2025. Source: NCREIF, Morningstar Direct, Cohen & Steers.
Past performance is no guarantee of future results. The information presented above does not reflect the performance of any fund or account managed by Cohen & Steers, and there is no guarantee that investors will experience the type of performance reflected above. Next-generation sectors are represented by the FTSE Nareit All Equity REITs Index data centers, health care, infrastructure, life science, manufactured homes, self storage and single-family homes. While industrial is considered a next-generation sector, it is excluded from this analysis due to its significant weighting in the NFI-ODCE index. See endnotes for index definitions and additional disclosures.

Since listed REITs have had higher returns than core private real estate over the long term, blending private portfolios with allocations to listed REITs has historically increased annualized total returns (Exhibit 4). At certain levels, portfolios blending private with listed real estate allocations may also increase Sharpe ratios, reduce volatility and mitigate drawdown risk.

Sensitivity analysis of static blends (2015 – 2025)

At March 31, 2025. Source: Bloomberg, NCREIF, Cohen & Steers.
Past performance is no guarantee of future results. The information presented above does not reflect the performance of any fund or other account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance reflected above. Standard deviation measures the volatility of an investment’s return over a given period. The Sharpe ratio is a measure of risk-adjusted return, calculated by subtracting the risk- free rate from a return and dividing the result by the standard deviation; a higher Sharpe ratio reflects better risk-adjusted performance. See endnotes for index associations, definitions and additional disclosures.

Listed REITs can be a powerful complement to private real estate, offering liquidity, diversification and the potential for enhanced results.

Objective	Allocation	Outcome
Mitigate volatility	10%	Adding a hypothetical 10% static allocation of listed REITs to a private real estate portfolio reduces the standard deviation from 5.5% to 5.2% since 2014; the maximum drawdown (i.e., peak-to-trough declines) is also lower. At the same time, annualized total returns rise by about 20 basis points to 4.9%.
Maximize Sharpe ratio	20%	Annualized total returns since 2014 increased by almost 40 basis points by adding a 20% allocation to listed REITs, but volatility declines. This results in the Sharpe ratio rising to 0.59 vs 0.50 for a 100% portfolio of private real estate.
Mitigate drawdown risk	30%	Since 2014, the max drawdown of a 30% allocation is –13.9% vs –19.9% for a 100% private portfolio and –29.2% for a portfolio of 100% listed. Note that the Sharpe ratio with a 30% allocation improves compared to a 100% private portfolio, as volatility is slightly lower (5.4%) and returns are higher (5.3%).
Maximize total return	100%	This allocation has generated greater than 5.7% annualized total returns since 2014, compared to 4.7% for a 100% portfolio of private real estate.

An investor’s unique objectives dictate the ideal balance of listed REITs in a portfolio of private real estate. Above, we highlight a few key points based on simple examples of hypothetical portfolios with a range of listed and private real estate allocations.

This may all seem counterintuitive at first glance; however, keep in mind that, as previously shown, listed REITs and private real estate have low correlations over short time frames. One typically zigs when the other zags, which can be used to an investor’s benefit. For instance, in 2022, private real estate rose while listed REITs declined. In 2023, listed REITs rose by more than 11%, and private real estate declined by almost 13%.

These are simplified examples, and these metrics could be improved even more through active management of listed REITs, but we believe it helps to illustrate that there is an illiquidity return discount in core private real estate (unlike other private assets that typically trade at premiums to their public peers) and that investors should embrace listed REITs as a diversification tool that can potentially meaningfully enhance results. This analysis holds true over longer time periods as well.

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We believe institutional investors should reconsider the construction of their core real estate portfolios, adding an allocation to listed REITs and replacing underperforming core private funds.

While private real estate and listed REITs are different types of investment vehicles, the underlying property holdings are similar. Long-term appreciation and dividends for both are driven primarily by the cash flows and growth profiles of the underlying property holdings. And whereas open- ended funds that own core private real estate are dominated by industrial and multi-family properties (as well as some office and retail), listed REITs offer diversification potential with exposure to a broader set of asset types, such as data centers, cell towers and single-family rentals. These alternative sectors make up 59% of the FTSE Nareit All Equity REITs Index, compared with just 9% of the NFI-ODCE Index (as of December 31, 2024).

Private investors frequently cite REITs’ equity-like characteristics as reason to avoid listed real estate. It is true that short-term returns for listed and private real estate are uncorrelated (heavily influenced by the smoothed appraisal values of private relative to the daily pricing of REITs). However, the two asset classes’ dispersions of returns over longer rolling periods is similar (Exhibit 5).

We believe a longer-term comparison offers investors insight into the risk of meeting their objectives in a way that is more in line with their investment time horizons. Over 3-, 5- and 10-year rolling periods, the range of REIT returns narrows dramatically—with greater returns at the high, median, and low end compared to the NFI-ODCE Index (net) over the trailing 10 years.

Dispersion of annualized returns (%, quarterly rolling periods 2000 – 2025)

At March 31, 2025. Source: NCREIF, FTSE Nareit, Cohen & Steers.
Past performance is no guarantee of future results. The information presented above does not reflect the performance of any fund or other account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance reflected above. Next-generation REITs are represented by the FTSE Nareit All Equity REITs Index data centers, health care, infrastructure, life science, manufactured homes, self storage and single-family homes. While industrial is considered a next-generation sector, it is excluded from this analysis due to its significant weighting in the NFI-ODCE index. See endnotes for index associations, definitions and additional disclosures.

Some investors rationalize the disparity in returns between listed and private real estate by pointing to differences in sector weights of listed and private real estate indexes. After all, listed REIT investors have benefited significantly over the past decade from the strong performance of specialty property types such as data centers, cell towers and single-family rentals, which have minimal representation in the NFI-ODCE.

However, a comparison of core sector returns for listed and private vehicles leads to a similar conclusion: Listed real estate has maintained its lead over most historical periods (Exhibit 6). For example, industrial real estate has been among the best performing core sectors in the private market.

However, listed industrial REITs have generally been far better at capitalizing on the growth opportunity in providing logistics capabilities for e-commerce.

Here are a few reasons we believe listed REITs generally outperform private real estate over longer periods:

• REITs have the ability to raise and deploy capital quickly and efficiently, with access to both public and private sources of equity and debt.
• Management teams’ financial incentives, including significant equity ownership stakes and performance-based compensation, spur strategic decisions that generate long-term shareholder value.
• REITs are primarily specialists, resulting in better market positions and better managers in those specialties—factors that lead to superior revenue realization and cost efficiencies.

At March 31, 2025. Source: Nareit, NCREIF, Morningstar, Cohen & Steers.
Past performance is no guarantee of future results. This information presented above does not reflect information about any fund or other account managed or serviced by Cohen & Steers, and there is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend will begin. The mention of specific sectors is not a recommendation or solicitation to buy, sell or hold any particular security and should not be relied upon as investment advice. See endnotes for index definitions and additional disclosures.

For core real estate allocations, institutional investors have traditionally favored private investments while relegating listed REITs to a satellite bucket. We believe institutional investors should instead consider a blend of private investments and actively managed listed REITs for their core holdings and use opportunistic/value-add private for satellite investments (Exhibit 7).

For example, private real estate investments can be used to further diversify a portfolio with strategies targeting higher risk and higher return potential. These could include development projects or distressed assets, in which investors may have control of the properties.

The blended portfolio approach offers the potential for significant alpha generation, particularly at market turning points. Listed REITs are well suited for diversified, core stabilized real estate exposure given their access to a broader set of real estate sectors and competitive advantage afforded by their ability to opportunistically raise capital quickly and efficiently. Listed REITs are also highly liquid, and implementing allocations are generally inexpensive to make.

Active REIT managers have historically outperformed passive investments, as they can often develop a differentiated view of the direction of property cash flows and asset values, identifying securities with upside potential and possibly sidestepping sectors that may be facing long-term headwinds. The median active U.S. REIT strategy generated a 10-year annualized return 110 basis points above its preferred REIT benchmark after fees, while top- quartile strategies delivered an average excess return of 181 basis points after fees (based on eVestment Alliance data as of March 31, 2024).

Hypothetical core/satellite model centered on listed REITs

At March 31, 2025. Source: Cohen & Steers analysis.

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