Real estate investment trusts are offering Canadian pension funds diversified commercial real estate exposure during uncertain period for overall real estate strategy, says John Worth, executive vice-president of research and industry outreach at the National Association of REITs.
The investment vehicle is increasingly providing investors with access to new and emerging property sectors like data centres, cellphone towers and health-care and life-science buildings, he says.
“[Investors are asking themselves] ‘does our real estate portfolio map to the modern economy?’ We think office, retail, residential, industrial, logistics [are all] important parts of the modern economy but it’s not the entirety.”
According to a recent survey by Nuveen, 65 per cent of global institutional investors are planning to increase allocations to real estate focused on digital infrastructure, while 66 per cent of investors plan to increase their private asset allocations over the next five years.
Institutional investors are considering ways to play the next real estate cycle, said Harriet Steel, global head of institutional at Nuveen, in a press release.
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In its most recent midyear financial report, the Caisse de dépôt et placement du Quebec said real estate is experiencing an overall stabilization following challenges over the past five years. A repositioning of the portfolio towards sectors like logistics since 2020 was favourable for the investment organization.
According to a 2024 report by CEM Benchmarking, REITs and private real estate have relatively low correlations with bonds and listed equity returns, reflecting diversification benefits to investors. Over a 25-year period between 1998 and 2022, REITs (9.74 per cent) and private real estate assets (7.66) produced positive average annual net returns.
REITs started picking up on diversifying assets in 2010, Worth says, noting the emergence of telecommunication assets as an investment opportunity. “There’s been a lot of change in the index over the last 10 to 15 years.”
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