Public REITs outperformed private real estate in defined benefit plans by nearly 2% annually over the past 26 years, according to a new study by CEM Benchmarking. 

The study looks at realized performance over time. Reporting on private real estate performance is lagged, so the study covers 1998 through 2023, the latest year for which private real estate performance is available. The standardized dataset found REITs deliver 9.72% in annual total net returns vs. 7.79% for private real estate. (The dataset in the study covers 462 public and private sector pensions.)

The one style of private real estate investment that outperformed REITs was internally managed direct real estate, a strategy available only to institutions or individuals with the resources to build an in-house real estate team. 

In addition, Nareit, the association that represents REITs, released its latest actively managed U.S. real estate fund tracker, which looks at about two dozen active real estate mutual funds and ETFs and gauges how those funds are shifting allocations between different property sectors and how much those allocations diverge or align with the FTSE Nareit US Real Estate Index Series. 

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In the fourth quarter, active managers rotated back into data centers. Healthcare (19%), telecommunications (14%), and residential (13%) claim the top three spots for overall active fund allocations. Data centers edged out retail for the fourth-highest allocation at 13%, compared to 12% for retail. 

When comparing allocation weights to the FTSE Index, active funds are most overweight to telecommunications (136%), followed by data centers (134%) and timberland (120%). 

WealthManagement.com spoke with John Worth, executive vice president for research and investor outreach at Nareit, and Nicole Funari, vice president of research at Nareit, about the two pieces of research as well as how REITs have fared amid recent equity market volatility.

This interview has been edited for clarity and length.

Wealth Management: We’ve talked about the CEM study before, but can you talk again about what it looks at and why it’s important context for investors?

John Worth: It looks at U.S. pensions by asset class over 26 years of data. One of the reasons we think it’s impactful is that, rather than being index-based, this is realized performance over time. It allows us to compare public and private real estate on an adjusted basis, apples-to-apples basis. 

REITs outperform private real estate by 172 basis points annually and when you standardize the data—taking the time lag that private real estate reporting has and adjust back for that, you find the difference widens to 193 basis points. 

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The study also gives a look at implementation style. The only private strategy that outperforms REITs is internally managed direct real estate, which is used by only a small percentage of plans. There’s a large degree of illiquidity and commitment to specific property types required.

It’s also interesting that REITs and direct are the two best-performing because those are two types of investment that are not on a fundraising cycle. They are on a capital allocation cycle, so I don’t think it’s a coincidence that that those come out as the best-performing. 

WM: And what is the value of looking over such a long timeline with this report? 

JW: The long-term trends continue to be the same. REITs bounce around 200 basis points per year each time the study is updated. That’s not trivial. And that spread holds up even through some periods that were tough sledding for REITs. This includes 2022 and 2023, which was a period of rising rates and REIT underperformance overall, but they still outperformed private real estate. 

WM: This would also seem to dovetail with another idea that we’ve talked about before of how investors can use REITs as a “completion” play to gain access to certain property types that may be harder to access through private strategies. 

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JW: When I look at the two best-performing strategies, as direct and REITs, they pair very nicely. You could have direct in some sectors and use for everything else use REITs to get access to. 

In addition, the fact that REITs performed well on a risk-adjusted basis is an interesting, supplementary point. One of the questions we get is whether REITs have higher volatility than private, and whether you will be paid for that volatility. This confirms that the returns you’re seeing compensate for the additional reported volatility. 

WM: Pivoting to the latest active managed tracker report, what stands out there?

Nicole Funari: A lot stayed the same. We see the same top three segments of healthcare, telecom and residential. We also saw a rebound in data center allocations. There had been some slackening off in the previous quarter, but there was a cycling back and it had the largest quarterly gain, over 1 percentage point. The weight in funds relative to the FTSE index is back up to 134%. 

We also saw some movements in some of the smaller sectors. Specialty REITs and timberland were up. And we’ve seen a bit of a withdrawal from gaming in the past few quarters. 

Of traditional property types, retail remains steady and is underweight compared to the index weight (75%). Residential moved back to its index weight (106%). There’s been a rebound in office (112%) and a pullback in industrial (76%). 

But the big story is the data center movement.

JW: Keep in mind that data centers ended 2025 down 14%. Managers are seeing it as a buying opportunity. And they are finding the REIT data center approach—which is development and actualized rental income—is an appealing investment proposition.

WM: Another story for the early part of 2026 has been a new bout of market volatility. How have REITs been weathering that?

JW: REITs are having a great year so far. One of the things we talked about in our year-end outlook, was dual divergences—the divergence in REIT valuations relative to private real estate and the divergence the broader equities market. While multiples expanded dramatically for the broader market, for REITs they had moved sideways. 

So over the first seven weeks of 2026 have been very much consistent with closing that divergence with the equities market. The REIT index is up about 9% year-to-date compared with the S&P 500 at 0.4%. In January, the all-equity REIT index was up more than 3%. And so far, month to date in February, REITs are up more than 5.5%. 

It’s also been very broad-based in terms of performance. The only two sectors that are in negative territory are offices, where there’s been a bit of a retrenchment, and residential, which is down just slightly, less than 0.5%. Data centers, meanwhile, are up more than 20% year-to-date, by far leading the pack. 

WM: I’m not sure if it’s also too premature to talk about this, but is there any fallout from the moves to ban institutional ownership of single-family housing?

JW: Nareit has been making the point that housing affordability is driven by supply. The solution to the housing market is to increase supply. We’ve tried to make it clear that we are happy to work on solutions to increase the overall supply. 

More people have come to understand that single-family rental companies are actually helping increase supply. The vast majority of homes they are adding to their portfolios are now build-to-rent. It’s a different business model than one driven by acquiring large portfolios of existing single-family homes.