David Sullivan

Institutional Investors Embrace REITs to Drive Performance, Innovation

Kyle Gustafson — Fri, 05 Dec 2025 15:52:56 +0000

Institutional Investors Embrace REITs to Drive Performance, Innovation Kyle Gustafson Dec. 5 2025

Key Takeaways

Institutional investors will continue to use REITs as integral components of their real estate portfolios.
Institutional investors will keep using REITs to achieve geographic and sector diversification as part of their portfolio completion strategies, which appear to be paying off in higher returns for investors.
REITs will continue to offer investors tactical investment opportunities because of their liquidity and potential for relative outperformance as valuations stabilize across real estate and broader equities.
Portfolio modeling shows that using public and private real estate together in a completion strategy has outperformed private real estate alone over the past 5-plus years—even accounting for periods of market volatility.

Institutional Investors’ Growing Use of REITs

Most institutional investors recognize REITs as core real estate investments and are using them in increasingly sophisticated ways. A recent Nareit–Coalition Greenwich study underscored this shift: 88% of respondents said investing in REITs is investing in real estate. The research also showed strong momentum going forward—89% of institutions plan to maintain or increase their REIT allocations over the next three years, including 20% that expect to increase exposure. Today, the largest investors widely rely on REITs as a central part of their real estate strategy.

As Nareit research and the chart above illustrate, on an asset-weighted basis, 70% of pensions are using REITs, typically alongside private real estate investments. In addition:

Larger and more sophisticated pensions are more likely to use REITs.
More than 75% of pension plans with more than $25 billion in assets use REITs.

The 2025 Hodes Weill Institutional Real Estate Allocations Monitor, based on data from a survey conducted from June 2025 to September 2025, underscored the importance that institutional investors place on using REITs, showing that more than 50% of public pension plans used REITs. The survey shows that investors with $50 billion or more in assets under management not only used REITs more extensively than smaller peers, but they also planned to increase their REIT allocations in 2025.

Nareit Case Studies Showcase Innovative Approaches to Using REITs

Over the past few years, Nareit has released a series of case studies illustrating how institutional investors have been strategically incorporating REITs into various real estate portfolio objectives, including enhancing sector diversification and driving returns

The chart above summarizes 11 case studies featuring pension plans, institutional investors, and sovereign wealth funds. Notably, Norges is the largest sovereign wealth fund in the world.

During 2025, Nareit published the latest installments in this series—three case studies offering valuable real-world insights for other institutional investors that are considering integrating REITs into their real estate portfolios.

Sovereign Wealth Fund Uses REITs for Diversification, Strategic Alpha

A sovereign wealth fund with substantial private holdings—ranked among the top 10 largest globally—adopted a global REIT mandate with DigitalBridge to gain liquidity, sector diversification, and strategic alpha.

The chart above shows how Digital Bridge used REITs to access key property types—such as cell towers, data centers, and logistics facilities—to achieve sector diversification and long-term portfolio objectives.

To gain strategic alpha, the sovereign wealth fund adopted an active approach with a high-conviction strategy that targeted best-in-class REITs and special situations to enhance returns. This approach is consistent with recent CEM Benchmarking research showing that REIT active management generates positive alpha.

Dutch Pension Plans Exemplify the Power of REITs

Recognized worldwide as innovative real estate investors, Dutch institutions have long embraced REITs for their global property exposure, efficient capital access, strong governance, and diversification benefits—making them a natural complement to illiquid private holdings. This is exemplified by Dutch fiduciary asset managers MN and Bouwinvest, which integrate listed REITs within their broader institutional real estate and real asset strategies.

The chart above shows how MN and Bouwinvest use listed real estate and REITs to efficiently and cost-effectively gain exposure to modern economic sectors, many of which are difficult to access through private real estate. Two main themes emerge from their approaches:

MN’s strategy emphasizes core mandates in developed markets with low leverage, stable income, and strong sustainability standards. Listed real estate allocations are roughly 25% for clients that have listed real estate in their portfolios, providing flexibility, diversification, and access to sectors such as logistics, residential, and senior living.
Bouwinvest follows a similar philosophy, integrating listed and private allocations across Europe, North America, and Asia-Pacific to optimize portfolio balance and gain exposure to modern economy sectors—like data centers, self-storage, and single-family rental—that are harder to reach privately.

Notably, both firms view REITs and private real estate as fundamentally the same asset class, differentiated by liquidity and access. PREA Quarterly offers an in-depth examination of both asset managers’ approaches to using public and private real estate together and how using REITs enhances liquidity, responsiveness, and diversification.

Incorporating REITs in a Completion Strategy Generated Outperformance

Many of the case studies that Nareit has published—including studies from the City of Austin Employees' Retirement System (COAERS) and LaSalle Securities—focus on how pension funds and investors implement completion strategies.

Nareit meets with hundreds of investors each year in countries around the world, and many have asked how a recent completion strategy would have performed over the past several years in light of the pandemic and the sharp rise in interest rates.

To address this question, Nareit created a simple hypothetical example of a completion portfolio and examined total return performance from 2020 through the second quarter of 2025. This example provides a useful way to explore how a completion strategy may have performed during a period of meaningful market disruption. Obviously real-world performance is influenced by a range of complex factors that may not be fully captured in a model portfolio.

The model completion portfolio mirrored the approach used by many pension plans, with a portfolio split of 65% private real estate and 35% REITs. Private real estate returns were based on the NFI-ODCE total returns net of fees. REIT total returns reflected the eight new and emerging sectors in the FTSE Nareit All Equity REITs Index; the REIT portfolio excludes the office, industrial, residential, retail, and diversified sectors that dominate the private portfolio. Consistent with the findings in the CEM Benchmarking study, REITs were assessed an investment management fee of 12.5 basis points per quarter. The analysis tracks the net of fee quarterly performance for the NFI-ODCE, REIT modern economy, and completion portfolios from the first quarter of 2020 through the second quarter of 2025.

The pie charts illustrate the weights of the private real estate mix, the modern economy REIT sectors added for broader diversification, and the combined completion portfolio. In the REIT allocation, telecommunications, health care, and data centers make up the largest sector weights.

As the chart above shows, the model completion portfolio outperformed the NFI-ODCE portfolio on a cumulative net total return basis in five of the six examined periods. From the fourth quarter of 2019 through the third quarter of 2025, the private real estate, REIT, and model completion portfolios had cumulative net total returns of 12.8%, 60.0%, and 30.8%, respectively. These translate into compound annualized total returns of 2.1% for the private real estate portfolio, 8.5% for the REIT portfolio, and 4.8% for the completion portfolio. Notably, the model completion portfolio outperformed the private real estate portfolio by 2.7% on a net of fee annualized basis. This demonstrates that even during a period of meaningful market disruption and volatility, using REITs with private real estate would have resulted in higher returns.

Institutional Investors Will Likely Lean More on REITs

Institutional investors increasingly view REITs as essential tools for achieving efficient exposure to high-quality real estate, accessing emerging sectors, and enhancing geographic diversification. Real world and hypothetical case studies show that combining private real estate with REITs enhances liquidity, improves portfolio flexibility, provides access to specialized operating platforms at scale—and can deliver higher returns than private real estate alone.

Nareit expects the role of REITs to likely continue expanding as investors deploy them in more advanced and targeted strategies

Given these findings, Nareit expects the role of REITs to likely continue expanding as investors deploy them in more advanced and targeted strategies—leveraging listed real estate’s scale, transparency, and operational excellence to strengthen portfolio performance across both traditional and modern property sectors.

Nareit Highlights U.S. REIT Market Strength in Meetings with European Institutional Investors

pconnors@reit.com — Fri, 14 Nov 2025 14:52:56 +0000

Earlier this month, Nareit’s John Worth and David Sullivan completed a productive roadshow to London and Munich to engage with leading institutional investors, managers, and consultants, promoting both Nareit and the U.S. REIT market.

The Growing Role of REITs in Institutional Investor Portfolios

Kyle Gustafson — Wed, 11 Dec 2024 13:58:42 +0000

The Growing Role of REITs in Institutional Investor Portfolios Kyle Gustafson Dec. 11 2024

Key Takeaways

Institutional investors will continue to use REITs as integral components of their real estate portfolios.
Institutional real estate investors will keep using REITs to achieve geographic and sector diversification as part of their portfolio completion strategies.
REITs will continue to offer investors tactical investment opportunities because of REITs’ liquidity, short-term valuation swings, and potential for relative outperformance as valuations stabilize across the market.

Institutional Investors Use of REITs Will Grow

Today, the majority of institutional investors look at REITs as a critical real estate investment and are increasingly using REITs in innovative ways. A recent institutional investor REIT usage study by Nareit and the market research firm Coalition Greenwich underscore this fact; 88% of investors said they view investing in REITs as investing in real estate. In addition, the Coalition Greenwich research also indicates that 89% of institutional investors plan to maintain or increase their REIT allocations over the next three years with 20% planning to increase their exposure. Finally, Nareit analysis demonstrates that the majority of the largest investors use REITs as a key component of their real estate strategy.

As shown in the chart above, 56% of the largest 25 North American investors are using REITs in their real estate strategy and 64% of the largest global investors are doing the same. New research by Hodes Weill, an institutional real estate advisory firm, and Cornell University highlights this point, showing that 65% of U.S. institutions with more than $50 billion in assets under management (AUM) invest in REITs as part of their real estate allocations.

REITs Provide Access to Broad Array of Property Sectors

Institutional investors are increasingly interested in accessing new and emerging real estate sectors and are recognizing that REITs offer access to modern economy sectors, such as data centers, telecommunications, and health care.

The chart above demonstrates that property sector exposures are evolving. Comparing investors’ current allocations and expectations of future allocations, the Coalition Greenwich data show how institutional investors’ allocations are expected to shift by 2027. The clear trend is that as institutional investors make new investments, those investments will lean toward modern economy sectors.

Based on the Hodes Weill/Cornell study, the Coalition Greenwich research, and Nareit’s institutional investor case studies, Nareit expects to see more institutional investors using REITs in 2025 as part of portfolio completion strategies to optimize, or complete, an element of their real estate portfolios.

Case Studies Show Innovative Approaches to Using REITs

During 2024, Nareit released a series of case studies illustrating how institutional investors are strategically incorporating REITs to achieve their real estate portfolio objectives, including enhancing sector diversification and driving returns. These examples offer valuable real-world insights for other institutional investors that are considering integrating REITs into their 2025 strategies.

Case Study 1: Norges Bank Investment Management (NBIM)

NBIM manages Norway’s Sovereign Wealth Fund and oversees $1.7 trillion in AUM, including approximately $58 billion in real estate. It invests 51% in REITs and 49% in private real estate to enhance diversification, access new and emerging property sectors, and optimize cost management.

The chart above shows how Norges uses public and private real estate in one portfolio. The REIT strategy gives Norges access to sectors like residential, data centers, health care, self-storage, and lodging, which private funds or direct investing may not be able to efficiently access. Office properties make up nearly half of Norges’ private portfolio, but this exposure drops to 28% of the total portfolio when REITs are included. Norges’ strategy shows how REITs play a crucial role in improving sector diversification and the overall risk-return profile of the fund. Read the full case study.

Case Study 2: PGIM and an Australian Superannuation Fund

An Australian superannuation fund identified critical gaps in property types and geographies within its commercial real estate portfolio. To address these gaps and improve performance, the fund partnered with PGIM to integrate REIT investments into its real estate portfolio.

The chart above shows how the fund’s original portfolio focused on three traditional property sectors, all within Australia. By using REITs, PGIM expanded the portfolio’s exposure to new property types and regions, including multifamily, heath care, specialty housing, self-storage, and digital infrastructure within the United States, Canada, and Europe. This strategy demonstrates how using private and listed real estate helped achieve the fund’s goals of enhancing geographic and sector diversification. Read the full case study.

Case Study 3: Employee Retirement System (ERS) of Texas

The Texas ERS manages approximately $38.2 billion in AUM and allocates 12% of it to real estate. Within that real estate allocation, ERS has a 25% target for REITs. ERS uses REITs to gain geographic and property sector diversification.

Global listed real estate, especially in Asia, is a key growth area for ERS, offering unique access to high-quality assets in foreign markets. The chart above shows how the public real estate portfolio with REITs has 37% exposure to foreign real estate compared with just 21% in the private real estate portfolio. By using REITs, ERS achieves geographic and property sector diversification otherwise unachievable in a private real estate portfolio. Read the full case study.

Case Study 4: Teacher Retirement System (TRS) of Texas

The Texas TRS manages $200 billion, 15% of which is allocated to its real estate portfolio. That portfolio historically invested mainly in private real estate but used REITs from 2022 to 2023 to tactically capitalize on the divergence between public and private real estate valuations. Through its Strategic Public REIT Execution and Delivery (SPREAD) program, TRS invested $400 million into public REITs over the course of 2023. During that time, TRS achieved a 17.1% internal rate of return with $47 million in profit, significantly outperforming TRS’s ODCE private real estate benchmark, which would have otherwise yielded more than a 10% loss.

The chart above presents the amounts and timing of the deployments (light blue) and realizations (gray) of the SPREAD investment capital. It also shows REIT index performance (dark blue) using the FTSE Nareit Equity REITs Index (FNRE) indexed to 100 at the SPREAD approval date of Dec. 1, 2022.

This case study offers a valuable model for institutional investors considering tactical REIT allocations by underscoring the importance of being nimble, flexible with asset class allocation, and sensitive to public market dynamics. Read the full case study in PREA Quarterly or listen to the REIT Report podcast episode , which features TRS members talking about the SPREAD program.

Institutional Investors Will Continue to Use REITs as a Key Component of Real Estate Portfolios

Institutional investors are increasingly recognizing that REITs provide efficient access to new and emerging real estate sectors and geographic diversification. Leading institutional investors believe REITs complement private real estate by filling allocation needs and addressing liquidity objectives.

Going forward, Nareit anticipates that more investors will continue to use REITs in increasingly creative and sophisticated strategies, including to access targeted sectors, different geographic regions, and to leverage REITs’ scale, scope, and operational expertise in traditional real estate sectors.

Largest Institutions Allocate New Capital to REITs

pconnors@reit.com — Thu, 21 Nov 2024 17:24:33 +0000

The recent Cornell University/Hodes Weill’s 2024 Allocations Monitor report found that in 2023, institutions were more active allocating capital to REITs, as investors looked to capitalize on discrepancies between public and private market valuations.

Norges Bank Investment Management Uses REITs as Strategic Component in Real Estate Allocation

pconnors@reit.com — Thu, 31 Oct 2024 14:17:04 +0000

Norges Bank Investment Management’s real estate investment strategy combines 50% REITs and 50% private real estate investments to enhance diversification, access new and emerging property sectors, and optimize cost management.

PGIM Helps Australian Superannuation Fund Improve Diversification Using REITs

pconnors@reit.com — Mon, 28 Oct 2024 13:31:15 +0000

An Australian superannuation fund identified critical gaps in both property types and geographies within its commercial real estate portfolio.

More Institutional Investors Will Likely Use REITs for Portfolio Completion

Kyle Gustafson — Mon, 04 Dec 2023 20:30:34 +0000

More Institutional Investors Will Likely Use REITs for Portfolio Completion Kyle Gustafson Dec. 4 2023

Key Takeaways

- In 2024, more institutional investors will use REITs as a tactical investment and strategic component of their real estate portfolio.

- The divergence in REIT and private real estate valuations will continue to offer a compelling tactical opportunity.

- Institutional investors will continue to use REITs as part of portfolio completion strategies to gain geographic or sector diversification.

- Looking forward, investors may use REITs to help achieve their sustainability targets.

Increasingly, institutional investors are recognizing that REITs provide both tactical and strategic opportunities and should be included in their real estate portfolios. Tactically, in the current macroeconomic climate, REITs provide an opportunity to take advantage of the large valuation gap between REITs and private real estate—a gap that will likely close during 2024. Strategically, REITs offer geographic and sector diversification and can enhance a portfolio’s sustainability attributes—all of which will entice more institutional investors to use REITs as part of portfolio completion strategies in 2024.

Institutional Investors’ Current Use of REITs

Nearly two-thirds of the largest and most sophisticated U.S. institutional real estate investors use REITs in their real estate strategies.

According to the Hodes Weill & Associates and Cornell University 2023 Real Estate Allocations Monitor, institutional investors view REITs as a complement to private real estate in overall portfolios because REITs fulfill their allocation needs and address liquidity objectives. The joint report surveyed 175 institutions across 25 countries. As shown in the chart above, 43% of U.S. investors surveyed use REITs in their real estate strategy; and when looking at the largest and most sophisticated U.S. institutions, 65% of those surveyed use REITs.

Institutional Investors’ Use of REITs Will Grow

In 2024, we expect to see more institutional investors that desire using REITs as part of portfolio completion strategies, or in a key investment role to optimize, or complete, an aspect of a real estate portfolio.

For example, institutional investors that desire greater geographic diversification, can add non-U.S. REITs and listed real estate to their portfolios. Likewise, investors that want more exposure to sectors that drive the modern economy, like data centers and telecommunications, institutional investors will use REITs to gain exposure to those sectors because REITs have larger portfolios and deeper operating platforms and experience than most private real estate funds. Finally, investors that have sustainability as part of their investment objectives will turn to REITs for their best-in-class environmental, social, and governance attributes.

In 2024, we expect to see more institutional investors using REITs as part of portfolio completion strategies, or in a key investment role to optimize, or complete, an aspect of a real estate portfolio.

Case Studies Show Innovative Approaches to Using REITs

Throughout 2023, Nareit published case studies showing how institutional investors are using REITs to meet their real estate portfolio objectives by increasing property sector diversification and boosting returns. These case studies serve as examples for other institutional investors who wish to use REITs in 2024.

South Korea’s National Pension Service (NPS): Working with the European Public Real Estate Association (EPRA) and FTSE, Nareit helped design a new index that targets property sectors that NPS does not own. NPS is benchmarking an initial $1 billion against this new index to complement its large private real estate portfolio.

NPS’ portfolio completion strategy focuses on new and emerging sectors and unique strategies within traditional sectors.

LaSalle Securities: Investment management firm LaSalle Securities successfully used a portfolio of REITs to dramatically change the composition of the real estate allocation for a moderate sized health care pension system. The LaSalle Securities team collaborated with the client to map the allocation of their existing real estate portfolio, identify the gaps, and then identify a selection of REITs the client could invest in to address those gaps.

The chart above illustrates how the REIT strategy successfully changed the client’s real estate portfolio by adding a listed REIT allocation to new and emerging property sectors to complete the portfolio.

City of Austin Employees’ Retirement System (COAERS): In 2019, COAERS was using private real estate to gain access to the office, industrial, multifamily, and retail sectors, but the pension was missing exposure to sectors outside of those four property types. COAERS worked with FTSE and Nareit to create a completion index of REIT sectors that weren’t represented in the pension’s portfolio.

COAERS used REITs to complement its existing private real estate exposure—which successfully helped the fund increase exposure to property types that will likely see increased demand in the future—and achieve meaningful outperformance relative to the broad FTSE Nareit All Equity REITs Index.

CenterSquare: Throughout 2022 and 2023, there has been a divergence between private and public real estate valuations. Investment management firm CenterSquare capitalized on this by adding a residential REIT sleeve into a client’s overall real estate allocation. This enabled CenterSquare to acquire exposure at attractive pricing due to the valuation gap between public and private real estate, while simultaneously addressing the client’s under-allocation to the residential sector.

CenterSquare executed its REIT strategy in mid-2022, when open end diversified core equity (ODCE) fund cap rates were still at 3.4%, but REITs had begun to reprice and were trading at a 4.6% implied cap rate. This move enabled CenterSquare to tactically take advantage of the valuation divergence, while completing the investor’s portfolio with exposure to a high-quality residential sector with best-in-class operating platforms.

The Future: Using REITs to Gain Access to Meet Sustainability Targets

Some institutional investors have become increasingly focused on the sustainability of their investment portfolios, and data show that REITs provide access to some of the best-in-class sustainability performers. A Journal of Portfolio Management study underscores this by demonstrating that REITs outperform private real estate in key sustainability metrics.

As shown in the chart above, REITs statistically outperform private real estate in four specific GRESB sustainability measures.

Nearly two-thirds of the largest, most sophisticated investors use REITs. In 2024, more institutional investors are likely to use REITs to complement private real estate allocations and complete their portfolios, as investors increasingly recognize the tactical and strategic benefits that REITs offer.

David Sullivan is senior vice president of investment affairs at Nareit. He leads institutional pension plan, foundation, and endowment outreach for Nareit, which entails promoting and facilitating real estate investment through REITs to institutional investors and their consultants worldwide.

REITs Complement Private Real Estate

pconnors@reit.com — Thu, 16 Nov 2023 17:28:10 +0000

According to the 2023 Hodes Weill/Cornell Real Estate Allocations Monitor, institutions consider REITs to be a complement to private real estate in terms of filling allocation needs and addressing liquidity objectives.

Nareit Conducts Institutional Investor Meetings in New York

drusignola@reit.com — Fri, 22 Sep 2023 15:37:28 +0000

The meetings included large foundations, endowments, consultants and investment managers.

Norges Bank Investment Management: Public and Private Real Estate All the Same in the Long Run

pconnors@reit.com — Mon, 11 Sep 2023 19:59:54 +0000

Norges Bank Investment Management (NBIM) recently published a discussion note, “Drivers of Listed and Unlisted Real Estate Returns,” which analyzes the drivers of U.S. public and private real estate returns and evaluates real estate exposures in the context of a diversified investment portfolio.