Market Overview

Real Estate's Amazing Decade, By The Numbers

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Real Estate's Amazing Decade, By The Numbers

When 2019 comes to a close in a few weeks, it will bring to an end one of the best-performing decades in the history of the U.S. economy. Barring a sudden collapse, the 2010s will be the first decade since before the Civil War that the U.S. economy did not experience a recession (defined as consecutive quarters of GDP contraction).

And what a decade it has been, particularly for U.S. equity investors. The S&P 500 is currently tracking for an annualized return of 11.4% for the decade, a far cry from the -0.99% annualized return in the previous decade and nearly double the 5.81% annualized return of its international equivalent, the MSCI EAFE Index.

But for all the attention paid to the resiliency of the U.S stock market these past 10 years, it overshadows the surprising turnaround in one key asset class: real estate.

“The run we’ve seen in real estate would have been unimaginable a decade ago,” said Craig Cecilio, founder and CEO of Diversyfund, a real estate investing platform. “We’re in the longest bull market in history, which has given investors more capital to deploy to other areas of the market. And the low-rate environment we’ve been in has led to favorable financing arrangements.”

Coming off the worst housing crisis in U.S. history, real estate has demonstrated its ability as an asset that can not just serve as a diversification tool, but one that can generate significant portfolio gains.

Here are four numbers that show how great a decade it was for real estate investing.

6

The number of years this decade (through the first half of 2019) that the FTSE NAREIT All Equity Index—and index that tracks U.S. equity REITs—outperformed each of the major market indexes—the S&P 500, Russell 2000, MSCI EAFE Index, MSCI Emerging Markets Index, and Barclay’s U.S. Aggregate Bond Index.

The NAREIT All Equity Index grew at an annualized rate of 12.78% over the course of the decade, greater than both the S&P and Russell.

11

In August 2016, the Global Industry Classification Standard official reclassified real estate as the equity market’s 11th sector. Prior to the move, REITs had long been considered alternative investments, but the reclassification was a signal that REITs had grown beyond the scope of traditional alternative assets and gained mainstream acceptance.

13.24%

The average annual return of the S&P 500 Real Estate Sector from January 2010 through the first half of 2019.

Within the S&P 500, real estate was the top-performing sector twice in the decade, tying consumer discretionary and technology as the most years out in front. And though it was outperformed by the technology, health care, consumer discretionary and consumer staples sectors, it still beat the overall market.

286,600

The number of multi-family units net absorbed in 2018, beating the 2017 figure by 10,000 units and marking the highest total since 2000. Net absorption, the measure of the change in supply in a given real estate market over a set period of time, is a key indicator of real estate market health.

That figure indicates that 286,600 more multi-family units were leased than were made available in 2018, signaling a supply shortage that would drive up prices.

What’s Next?

Looking ahead, the real estate market should continue to show strength in 2020, both in terms of the underlying economics and capital markets. According to CBRE, the low-interest-rate environment, strong capital flows, and slower overall economic growth will all contribute to leading the market higher.

The firm also estimates that real estate investment volume will come in between $478-$502 billion in 2020, which would make it one of the strongest years on record.

Most of that investment activity is in public real estate—the more liquid side of the market. Meanwhile, on the private side, new investment platforms, like DiversyFund, have helped to open up the doors to an asset class that has historically been off-limits to retail investors.

“Private real estate has a low correlation to other assets, so it’s become a widely used tool by institutional investors to diversify,” Cecilio said. “Unfortunately, most investors are blocked off from investing in private real estate. But there’s no reason they should be. We believe that all investors should have access to this investment, regardless of their portfolio size. Needless to say, we're bullish on real estate."

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