The Role of REITs in Real Estate Allocations

John Vojticek

Research

41 Pages

The authors argue REITs should complement private real estate, combining public-market liquidity with long-run exposure to the same underlying property cash flows. Over 30 years, listed real estate returned 9.1% annually versus 7.0% for direct property, while a 90/10 private/listed mix delivered the highest return per unit of risk.

Key Takeaways

Correlations converge: Quarterly correlation was 0.16; over 10-year rolling periods it reached 0.66, or 0.83 when REIT returns were lagged four quarters.
Discounts reward patience: At 10%+ NAV discounts, REITs returned 13.3% annualized over three years and 13.9% over five, versus 10.0% and 9.7% overall.
Small allocation helps: A 90/10 private/listed allocation produced the highest return per unit of risk in the 1996–2026 back-test.
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