Investment Performance History
5 year Global Real Estate fund return overview and 2025 forward
Real estate investment funds can provide different returns depending on the property market conditions. Generally, returns range from 4% to 7% over a five-year period, depending on the region and market cycle.
Looking at the past 5 years, many real estate funds have shown positive returns, especially those in sectors like industrial properties, logistics, and residential housing.
U.S. Real Estate Funds (REITs)
The U.S. market, particularly the residential and industrial sectors, performed well over the last 5 years. REITs focused on industrial properties (like warehouses and logistics centres) saw significant growth due to the rise in e-commerce.
For example, Vanguard Real Estate ETF (VNQ), which tracks the U.S. real estate market, has seen positive returns over the past five years, with an average annual return of around 6-8%.
REITs focused on residential properties, especially single-family rentals, also performed well as home prices rose.
Global Real Estate Funds
Real estate funds focusing on global properties, especially in growing markets like Asia-Pacific, have had varied returns. Some funds in growing markets, particularly in emerging economies, have seen positive returns, but the performance is often more volatile.
Funds such as Schroder Global Property Fund and JPMorgan Global Real Estate Fund have shown positive returns in the last 5 years, often averaging 5-7% annually.
Specialized Real Estate Funds:
Industrial Real Estate: REITs and funds that specialize in logistics, warehouses, and industrial properties have seen solid growth, especially as e-commerce and supply chains grew during the pandemic. For example, funds like Prologis (PLD), a logistics-focused REIT, posted strong returns, often outperforming broader market indices.
Residential and Healthcare REITs: These funds, including those focused on multi-family housing, senior housing, and healthcare properties, have also had positive returns. The aging population and demand for housing drove growth in these areas.
Property Outlook
Through global surveys, the market has indicated that commercial real estate owners and investors are hopeful of a positive 2025. This driven by several key themes:
Disinflation & Capital Expenditure
The property sector has been a casualty of global inflation and persistently high interest rates, leading to the compression in valuations.
Capital expenditure has been costly the past years with capacity constraints, higher cost of borrowing, post Covid supply and labour issues, coupled with a move away from globalisation through near shoring.
With the global narrative changing to one of disinflation, interest rates falling, and supply issues lifting, raises expectations for 2025 through enticing greater liquidity in the sector, spreads compressing, and lowering costs for capital expenditures which enhance the investment narrative.
Balanced Competitor Environment
With the current position in the cycle, this has opened access to high quality / trophy assets. This opportunity though is expected to be short lived as the flight to quality intensifies. It does have a flow on impact on lower quality assets, raising the need for capital expenditure and asset holders to embrace technology driven efficiencies to remain relevant and attractive to future investors / tenants.
New Liquidity Cycle
Capital markets are anticipated to open throughout the course of 2025. As returns are anticipated to increase in the sector through cap rate compression, narrowing spreads, and good fundamentals, so does the flow of capital. Structurally, the rate of increased liquidity is anticipated to be further enhanced by the growing need to deploy a growing pool of retirement capital.
Supply Constraints
The global inflation narrative has led to material decreases across the globe in property development. Of note is in the industrial space where demand is increasing as onshoring gathers pace. This has supported industrial valuations and will continue to do so as supply shortages continue into increase in 2025. Most prominently in Europe and the US, with some, but insufficient, supply appearing in Asia Pacific.
Return to Office Mandates
The office sector has attracted many industry headlines over the past years with drastic valuation declines (up to 25-30%), higher vacancy rates due to post-pandemic hybrid work arrangements, and loan distress as rates stayed higher for longer.
The sector appears to be coming out of this negative phase as company policies push for workers to return to the office, driving demand for additional floor space.
It is recognised that with the availability of office space, a drive toward quality is expected, increasing occupancy rates and rental yields for A-Grade locations. This will drive lower grade locations to upgrade and embrace technology to remain competitive.
**Past performance is not indicative of future results. The value of investments and the income generated from them can fluctuate, and you may not get back the amount originally invested. Previous performance does not guarantee future returns. Investors should consider their personal risk tolerance, financial goals, and seek professional financial advice before making investment decisions.