Updated CEM Benchmarking Study Highlights REIT Performance

19-year study reveals allocations, returns, volatility and risk-adjusted performance of 12 asset classes.

CEM Benchmarking’s 2018 study, sponsored by Nareit, provides a comprehensive look at realized investment performance across asset classes over a 19-year period using a proprietary dataset covering more than 200 public and private sector pensions with nearly $3.5 trillion in combined assets under management. One of the unique benefits of the CEM dataset is that it provides the actual realized performance net of investment costs of the assets chosen by plan managers and trustees.

The study compares gross and net average annual total returns as well as correlations and volatilities for 12 asset classes with appropriate adjustments for reporting lags associated with illiquid asset classes (unlisted real estate and private equity).


  • REITs had the second highest average annual net return of the 12 asset classes covered in the study.
  • REITs outperformed all styles of unlisted real estate
  • REITs had relatively low correlation with non-real estate asset classes.
  • REITs had the highest non-fixed income risk adjusted return.

CEM Finding: REITs Outperformed Most Major Asset Classes

Over the 19-year period covered by the study there are striking differences in performance across asset classes. The chart below summarizes average annual net returns and expenses for the 12 asset classes.

  • Listed equity REITs had the second highest average annual net return over the period, averaging 11.04 percent. Private equity had the highest average annual net return, of 11.64 percent.
  • Unlisted real estate produced an average annual net return of 8.3 percent over the period, nearly 25 percent less than REITs.
  • The two worst performing asset classes were hedge funds/tactical asset allocation (TAA) strategies and U.S. other fixed income. U.S. other fixed income however includes cash. If cash is excluded from U.S. other fixed income as an aggregate asset class, then hedge funds/TAA would have been the worst performing asset class with a 19-year arithmetic average annual net return of 4.99 percent.

CEM Finding: REITs Outperformed All Types of Unlisted Real Estate

  • Over the study period, REITs delivered higher average annual net returns than all four types of unlisted real estate held by pension funds: internally managed core real estate; externally managed core real estate; opportunistic real estate externally managed in the private equity GP-LP style; and opportunistic real estate externally managed in fund-of-funds structures.

CEM Finding: REITs Had High Correlation With Unlisted Real Estate, Low Correlation With Equities, Fixed Income and Alternatives

The study computed correlations of annual returns among the 12 asset classes. The table below summarizes some key correlations between broad equities, REITs and unlisted real estate.

  • As highlighted in green, REIT and unlisted real estate returns were highly correlated when illiquid returns are adjusted for reporting lags. The correlation is measured as .92. The high correlation is not surprising given the similarities in underlying assets.
  • REIT and unlisted real estate returns had relatively low correlations with listed equity returns. These relatively low correlations reflect the well-known diversification benefits associated with the real estate asset class, whether REITs or unlisted real estate.

CEM Finding: REITs Delivered Superior Risk-Adjusted Returns

The study also compared volatilities and risk adjusted returns using the Sharpe ratio across asset classes. The data are summarized below.

  • Two fixed income asset classes had the highest Sharpe ratios reflecting their extremely low volatilities albeit modest returns.
  • Outside of fixed income, REITs had the highest Sharpe ratio measuring .43, reflecting their high returns and just above average volatility. Unlisted real estate had a much lower Sharpe ratio measuring .33, reflecting lower returns and comparable volatility to REITs.
  • REITs' .43 Sharpe ratio over the study period was higher than the Sharpe ratios of all types of unlisted real estate in the study, including internally managed core real estate (.37), direct externally managed core real estate (.33), externally managed (GP-LP) opportunistic real estate (.33), and external fund-of-fund opportunistic real estate (.24).
  • After adjusting for valuation lags, the study found that REITs and unlisted real estate had comparable volatilities. REITs and unlisted real estate had the fourth and sixth most volatile net returns with measured volatilities of 19.26 percent and 18.32 percent respectively. As with correlations, the similarity in volatilities is not surprising given that listed equity REITs and unlisted real estate have the same underlying assets.
  • Non-U.S. stock and hedge funds/TAA had the lowest Sharpe ratios reflecting high volatility and poor returns, respectively.
  • After adjusting for valuation lags, private equity was by far the most volatile asset class at 26.78 percent.