In the short term, real estate’s stable income flows and smooth valuations give some investors the impression of bond-like behavior. But analysis with MSCI’s IPD data set and new MSCI analytic tools show that this impression is misleading: the long-run behavior of the asset class is much more cyclical and growth-sensitive.
The research has significant implications both for asset allocation decisions and risk management. Real estate’s higher yields come with higher systematic risk, while tenant credit and interest rate risk may be secondary.
While it is not the free lunch some would hope for, we find evidence that private real estate generates a liquidity premium in most markets around the world, and inefficiencies in international markets still leave large opportunities for diversification globally.
Source : MSCI