Active managers of listed real estate funds have historically outperformed passive. We believe this is due to the inefficiency, diversity and complexity of listed real estate markets.
KEY TAKEAWAYS
- Listed real estate has historically been fertile ground for active managers
leveraging their information advantage to build a track record of outperforming passive. - Real estate stocks receive relatively limited analyst coverage, resulting in
market inefficiencies that may advantage REIT specialists. - Listed real estate sector and country return disparities in any given year can be substantial, creating alpha opportunities for adept active investors.
Listed real estate has historically been fertile ground for active managers
Index investing reached a milestone in early 2024, with assets in passive investment vehicles surpassing those in actively managed strategies for the first time. On the surface, the appeal of index investing is compelling: Passive exchange-traded funds (ETFs) offer lower costs. And, in the case of broad-based equity categories, active managers frequently fail to consistently outperform their benchmarks. But cheaper is not always better, and not all markets are alike.
Real estate is one area of the equity market that lends itself to active management, and portfolio managers who commit time and resources to understanding property fundamentals, market trends and other factors that may affect performance can potentially spot pricing inefficiencies and rapidly implement plans to generate excess returns.
Compared with broader equity classes, we believe this advantage is reflected in the performance of active listed real estate funds relative to passive investment vehicles, even after fees. Active listed real estate funds have outperformed their passive counterparts across three-, five and ten-year periods (Exhibit 1). In contrast, active funds in certain popular categories, such as large-cap blend stocks, have not provided such consistent outperformance.
EXHIBIT 1
Active management is a winning strategy in the real estate category
(Average excess return and success rate for active vs. passive)

At September 30, 2024. Source: Cohen & Steers and Morningstar.
Data quoted represents past performance, which 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. 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 views and opinions are as of the date of publication and are subject to change without notice. An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees, expenses or taxes. Index comparisons have limitations as volatility and other characteristics may differ from a particular investment. The mention of specific securities is not a recommendation or solicitation for any person to buy, sell or hold any particular security and should not be relied upon as investment advice. (1) Success Rate is defined as the percentage of funds within a specific Morningstar category that both survived the sample period in question and delivered returns exceeding the equal-weighted average return of passive funds in the same category over that period. For mutual funds, institutional share class returns were used.
Recently, the outperformance of active listed REIT funds vs. passive has been so pronounced that passive funds have only beaten the bottom quartile of active funds over rolling five-year periods—that is, even below-average active funds have outperformed passive funds (Exhibit 2).
EXHIBIT 2
75% of active real estate funds have outperformed passive in last five years
(Average rolling 5-year return by quartile)

At December 31, 2024. Source: Morningstar, Cohen & Steers.
Data quoted represents past performance, which is no guarantee of future results.
In our view, active outperformance is rooted in three distinctive qualities of the listed real estate market: 1) market inefficiency, 2) a diverse universe of securities with wide dispersion of returns across property types, and 3) an information advantage among specialist active managers.
REITs are under-analyzed compared with broad stocks
One reason that active management matters in listed real estate, we believe, is that markets are inefficient at valuing REITs. Notably, there are far fewer analysts covering REITs than there are for more efficient markets, such as broader stocks (Exhibit 3).
Less coverage and scrutiny make for inefficiencies that active listed real estate portfolio managers can potentially exploit. Critical metrics may be overlooked or not fully understood, resulting in larger disconnects between market expectations and fundamental value.
In the last three years, for example, close to 75% of REITs missed or beat consensus targets by more than 5%. Passive investments, by definition, are not positioned to navigate changing expectations and are unable to exploit these inefficiencies.
EXHIBIT 3
Markets are inefficient at pricing listed real estate fundamentals

At December 31, 2024. Source: Factset, Bloomberg and Cohen & Steers.
Data quoted represents past performance, which 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. 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 views and opinions are as of the date of publication and are subject to change without notice. An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees, expenses or taxes. Index comparisons have limitations as volatility and other characteristics may differ from a particular investment. The mention of specific securities is not a recommendation or solicitation for any person to buy, sell or hold any particular security and should not be relied upon as investment advice. (1) International REITs: FTSE EPRA Nareit Developed ex-US Index; U.S. REITs: FTSE Nareit All Equity REITs Index; US Equities: S&P 500 Index; Int’l Equities: MSCI EAFE Index; EM Equities: MSCI EM Index. (2) Trailing 3-year period ending December 2024.
Capitalizing on distinctive sector characteristics
While the market often considers listed REITs a single asset class, it’s a collection of 17 subsectors that can behave quite differently.
Real estate sectors and companies tend to respond to market conditions depending on factors such as their lease durations, types of tenants, economic drivers and supply cycles. These differences have historically resulted in wide dispersion of sector returns in any given period (Exhibit 4).
More economically sensitive sectors with short lease terms, such as hotels and self-storage, can adjust rents relatively quickly to capture accelerating demand in a cyclical upswing. By contrast, longer-lease sectors such as net lease and health care have more defensive cash flows that may be more resilient during economic downturns.
2024 was a good example—there was a large difference in returns between the best-performing subsector (specialty REITs, 35.9%) and the worst-performing subsector (industrial, –17.8%). 2023 wasn’t far behind, with a return difference between the best and worst U.S. sectors of almost 38 percentage points. The return disparity in country performance was even greater.
We have observed that the difference in returns at the security level within each sector is often similar to the variance at the sector level. We believe this dispersion highlights the opportunities active managers have to enhance returns through both sector and stock selection globally.
EXHIBIT 4
Significant return dispersion across sectors and countries benefits active managers

At December 31, 2024. Source: Cohen & Steers and Morningstar.
Data quoted represents past performance, which 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. 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 views and opinions are as of the date of publication and are subject to change without notice. An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees, expenses or taxes. Index comparisons have limitations as volatility and other characteristics may differ from a particular investment. The mention of specific securities is not a recommendation or solicitation for any person to buy, sell or hold any particular security and should not be relied upon as investment advice. (1) The FTSE Nareit All Equity REITs Index contains all tax-qualified REITs with more than 50% of total assets in qualifying real estate assets other than mortgages secured by real property that also meet minimum size and liquidity criteria.(2) The FTSE EPRA Nareit Global Real Estate Index is a global market-capitalization-weighted index composed of listed real estate securities in North America, Europe, Asia, and South America, including both developed and emerging markets. The dispersion analysis covers the countries which make up the developed markets of the index.
As managers pursue value, the flexibility to invest in high-conviction ideas in non-U.S. markets can be advantageous. For instance, while international REITs overall have widely lagged U.S. real estate in recent years, there have been pockets of exceptionally strong performance (along with areas of sizable declines), such as U.K. self-storage in 2021 and China data centers in 2024.
The REIT specialist advantage
Over and above the average return advantage of active REIT strategies, some investment managers have demonstrated historical outperformance over their active peers. Specifically, funds with managers who specialize in REITs (defined as those who only manage REIT funds) tend to outperform funds with managers who are generalists (defined as those who manage REITs as well as other asset classes, such as infrastructure or utilities).
EXHIBIT 5
Specialist REIT portfolio managers have outperformed generalists
(Total returns)

As of December 31, 2024. Source: Morningstar, Cohen & Steers.
Data quoted represents past performance, which is no guarantee of future results.
While investments in passive ETFs can certainly make sense in some areas of the equity market, listed real estate has rewarded active management, with historical performance clearly favoring funds run by specialist real estate investors. Market inefficiencies and large return differences across countries and sectors present opportunities for managers with the right skills to unlock alpha.
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Index definitions / important disclosures
Data quoted represents past performance, which is no guarantee of future results. 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 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.
This material represents an assessment of the market environment at a specific point in time and should not be relied upon as investment advice, does not constitute a recommendation to buy or sell a security or other investment and is not intended to predict or depict performance of any investment. This material is not being provided in a fiduciary capacity and is not intended to recommend any investment policy or investment strategy or take into account the specific objectives or circumstances of any investor. We consider the information in this presentation to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of appropriateness for investment. Please consult with your investment, tax or legal professional regarding your individual circumstances prior to investing. An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees, expenses or taxes. Index comparisons have limitations as volatility and other characteristics may differ from a particular investment.
Risks of Investing in Real Estate Securities
Risks of investing in real estate securities are similar to those associated with direct investments in real estate, including falling property values due to increasing vacancies or dec lining rents resulting from economic, legal, political or technological developments, lack of liquidity, limited diversification and sensitivity to certain economic factors such as interest rate changes and market recessions. Foreign securities involve special risks, including currency fluctuations, lower liquidity, politic al and economic uncertainties, and differences in accounting standards. Some international securities may represent small - and medium-sized companies, which may be more susceptible to price volatility and less liquidity than larger companies.
No representation or warranty is made as to the efficacy of any particular strategy or fund or the actual returns that may be achieved.
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