Private real estate has historically played a vital role in diversifying portfolios, and the conditions surrounding the market’s recovery are bringing these characteristics back to the forefront. The asset class has the potential to deliver:
- Low correlation to stocks and bonds: Private real estate holds a low correlation to public equities and bonds. With extended public market volatility in recent years, the resilience private real estate can provide to portfolios could prove beneficial.
- Steady income: Real estate assets deliver steady income through rental payments. Investors who are able to identify regions with strong supply and demand imbalances in certain sectors will be well placed to generate predictable income.
- Illiquidity premium: With more investment vehicles available today, access to private markets is easier for wealth investors. The illiquid premium that private assets such as real estate offer is delivering attractive compensation and potentially higher returns.
Historical strength
Private real estate’s resilience is a historical strength of the asset class. However, global real estate has undergone seismic shifts in recent years, shaking up the opportunity set.
The pandemic catalysed many of these changes. Working from home is now commonplace, which has altered office demand. The varying degrees of lockdown propelled e-commerce but created unique challenges for retail and hospitality.
The rapid interest rate hikes, global trade wars, slower economic growth in some countries and an oversupply in some sectors and regions challenged real estate further.
However, these conditions also created opportunities. The rise of protectionism, with trading blocs and countries looking to onshore supply chains, has been a tailwind for warehouse and other logistic real estate.
Elsewhere, data centres, senior living, student housing and affordable housing have become compelling investment areas as artificial intelligence, ageing demographics, the growth of the East, urbanisation and increasing inequality are influencing structural trends. These dynamics are at different stages around the world. To tap into these trends and diversify real estate allocations, investors must take a global approach.
Macroeconomic events have disrupted demand in many sectors. However, investors seeking to allocate to private real estate effectively must be able to see where the entry points are, even in sectors that appear unfavourable. For example, while the office sector has been overlooked as demand fell, there are pockets where the sector is exhibiting positive momentum.
Data from the MSCI Global Property Index show that in terms of capital growth, the office sector in Norway has posted positive quarterly results since June 2024, while Sweden has seen positive results from the third quarter 2024 to the second quarter 2025, with the latest results yet to be reported.
The changing dynamics of the office sector demonstrate that, even in apparent downturns for specific segments, a diversified and global approach to real estate can help investors navigate these markets.
Shawn Lese is chief investment officer and head of funds management, Americas, Nuveen Real Estate.
Visit nuveen.com/global-cities to find out more about Nuveen’s global cities strategy.
Important Information
Investing involves risk, including the loss of principal. Past performance does not guarantee future results. Real estate investments are subject to various risks associated with ownership of real estate-related assets, including fluctuations in property values, higher expenses or lower income than expected, potential environmental problems and liability, and risks related to leasing of properties. This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Financial professionals should independently evaluate the risks associated with products or services and exercise independent judgment with respect to their clients.
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