At a glance
- Interest in global real estate securities (GRES) is increasing – an understandable trend when one considers the potential benefits afforded by their inclusion in a broader portfolio.
- A $2.1 trillion Global REITs universe provides investors with a tax-efficient and liquid option for accessing property around the world.
- The sector offers scope for attractive risk-adjusted adjusted returns through a proven approach leveraging extensive fundamental research.
- We believe the current environment offers an attractive entry point – monetary policy is accommodative, and many valuations look compelling.
Structural growth drivers underpin potential
The listed global real estate sector is comprised of around 350 companies with a combined market capitalisation of about $2.1 trillion. The universe spans geographies, sectors, subsectors, industries, individual businesses and locations. A significant portion of the sector enjoys solid structural growth trends, for example:
- Growth in artificial intelligence (AI) is powering demand for more data centres and related infrastructure.
- Housing shortages and affordability issues have meant that more people are renting. Well-placed residential businesses are capable of plugging the gap.
- Ageing populations are driving demand for related healthcare infrastructure including outpatient, senior housing and long-term care facilities.
- Healthy demand for industrials (including logistics) is set to persist. Despite immediate tariff uncertainty, there is a positive structural backdrop as e-commerce continues to penetrate retail markets supported by on/near-shoring trends.
Figure 1: Tapping into structural growth drivers
Source: EPRA, Columbia Threadneedle Investments, November 2025
Real estate equities to close the gap as interest rates fall
From a valuation perspective, the current environment offers an attractive entry point for investors. We see strong or improving underlying fundamentals due to good tenant demand for high quality assets, buoyed by a lack of new construction in certain sectors. This is supported by improving transaction markets underpinning asset values.
Inflationary pressures are cooling and interest rates are expected to come down. As a leveraged asset class this bodes well for real estate and suggests a constructive backdrop for related equities. Indeed, our analysis demonstrates historical outperformance from real estate equities following a cut in interest rates, and we see significant potential from here given the gap between net asset values and share prices.
Real estate equities have lagged broader indices post the Covid-induced inflation spike, but it is our expectation that the situation is set to change.
A rich hunting ground for active investors
The global index creates a fertile ground for active investing. Given that the prospects for geographies, sectors, subsectors and REITs differ markedly, there is a strong case for active investing in global real estate securities.
We select over and underweight positions through analysis of relative valuation and assessment of how each REIT is positioned within the different subsectors – both strategically and tactically whilst accounting for the broader economic outlook. The analysis includes (but is not limited to):
- Financial analysis of REITs under coverage
- Cyclical and structural changes in underlying property markets
- Corporate governance and management track records
- Changes to conditions in underlying capital markets.
Beyond the fundamental investment approach described above, we also consider the liquidity of the listed property sector, which is highly sensitive to capital flows.
Figure 2: An attractive entry point for investors
Performance of REITs vs. global equities – after the last four cyclical peaks in interest rates
REITs performance vs. other major indices
Source: Bloomberg, Green Street, Columbia Threadneedle Investments. Data as at 30.09.2025
Extended alpha strategy
The portfolio is constructed in an extended alpha framework – typically 130% long and 30% short, with a net exposure of close to 100% in line with the benchmark – throughout the market cycle. The team designed the strategy to target attractive risk-adjusted returns – consistent alpha generation with low tracking error. The strategy is characterised as a diversified portfolio with modest active share, combined with high turnover as we rotate in and out of REITs based on market pricing.
This strategy is designed to take advantage of a benchmark that has many companies with small constituent weights. As mentioned, the investment universe, as defined by the FTSE EPRA Nareit Developed Global Index, comprises around 350 stocks, yet nearly 90% of the constituents have an index weight of less than 0.5%. Thus, a traditional long-only approach cannot express a meaningful negative view on almost 90% of the benchmark constituents, whereas the extended alpha framework enables us to do that through targeted short positions.
The strategy does not use short positions to express the view that the company’s share price in isolation will fall. Instead, it allows the manager to extend the positions in a relative value pair trade whilst maintaining sector neutrality.
Figure 3: A unique strategy in real estate
Extended Alpha Strategy, c. 130% long / 30% short portfolio vs traditional long only portfolio construction
Source: Columbia Threadneedle Investments
Figure 4: Under-researched universe with long tail of small caps
Source: FTSE, Columbia Threadneedle Investments. Data as at 08.10.2025
The bottom line
Interest in global real estate securities is picking up – an understandable trend when one considers the potential benefits afforded by their inclusion in a broader portfolio. The downward trajectory for interest rates is positive, and valuations overall remain at attractive levels.
In many areas limited new construction creates a supportive supply/demand dynamic. This bodes well for rental growth and in turn drives returns for selective investors. Property valuations have started to recover, but with improving sentiment and increasing transaction activity we expect to see further appreciation in select assets.
Our focus remains on identifying and implementing relative value pair and peer group trades based on mispriced securities with the goal of delivering consistent alpha throughout the market cycle.
Investment risks
The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.
Investments which are concentrated in a specific sector or country may result in less diversification and hence more volatility in investment values.
An investment concerns the acquisition of units or shares in a fund, and not underlying assets such as buildings or shares of a company, as these are only the underlying assets owned by the fund. The decision to invest in the promoted fund should also take into account all the characteristics or objectives of the promoted fund as described in the prospectus. Full list of relevant risks can be found in the KIID/KID and prospectus.
