Introduction
This paper provides a primer on real estate investing, addressing foundational questions such as why and how to invest in the asset class. It includes a brief survey of the list of choices faced by investors, ranging from where to position on the risk spectrum to how to approach selecting from the many product and manager choices. The real estate asset class derives its returns from ownership of income-generating physical properties; this means buildings and usually the land they sit on. Real estate debt is not addressed in this paper; it is another interesting way to gain exposure.
A disciplined framework is particularly useful given the vast size and diversity of the real estate markets. The investable universe of global real estate assets has an estimated value of $58 trillion.1 Within that vast total, MSCI estimated the professionally managed global real estate market to be $13 trillion in its July 2023 report.
Figure 1 | Professionally managed real estate market share by region (US$13 trillion total)
Source: MSCI Real Estate Market Size Report, July 2023.
By owner type, unlisted (or private) funds account for 36% of professionally managed global real estate by value, or $4.8 trillion. This includes open- and closed-ended funds as well as unlisted REITs. Private funds represent 43% of real estate ownership in EMEA, 40% in the Americas, and 23% in Asia Pacific, as shown in Figure 2.
Figure 2 | Professionally managed real estate market share by owner type
Source: MSCI Real Estate Market Size Report, July 2023.
Note: “Asset Owners” include pensions, sovereign wealth funds, insurance companies, endowments and other segregated accounts. “Others” include banks, conglomerates and other private investors.
Why invest in real estate?
Equity investments in real estate can have multiple benefits in a well-constructed portfolio.
- Current income
- Inflation protection
- Diversification
- Attractive total return
A clear understanding of purpose and priorities among these benefits forms the foundation for successful portfolio construction.
1 Global investable universe is sourced from LaSalle Management, Accessing the Real Estate Investment Universe in 2021, January 2021. Global Equity market capitalization is estimated to be $109 trillion, and global fixed income is estimated to be $125 trillion, sourced from PREA The Real Estate Investment Universe in 2021, Spring 2021.
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