Markets in a Minute
Ranked: Real Estate Returns by Property Sector (2012-2021)
This infographic is available as a poster.
This infographic is available as a poster.
Real Estate Return on Investment by Sector
For the ninth year in a row, Americans say real estate is the best long-term investment.
However, what might be less clear to the average investor are the different types of investments available within the real estate sector, and how they compare. Real estate return on investment within property sectors has historically been uneven, and 2021 was no exception. While residential property soared, office real estate has performed relatively poorly.
Are there any patterns in the top performers over time?
This Markets in a Minute from New York Life Investments ranks real estate return on investment by sector over the last decade.
Sector Returns Over Time
We used data from the National Association of Real Estate Investment Trusts to show real estate return on investment by year. A real estate investment trust is a company that owns, operates, or finances income-producing real estate.
Here’s how total returns stack up by property sector, sorted from highest to lowest return in 2021.
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Self Storage | 19.9% | 9.5% | 31.4% | 40.7% | -8.1% | 3.7% | 2.9% | 13.7% | 12.9% | 57.6% |
| Residential | 6.9% | -5.4% | 40.0% | 17.1% | 4.5% | 6.6% | 3.1% | 30.9% | -10.7% | 45.8% |
| Industrial | 31.3% | 7.4% | 21.0% | 2.6% | 30.7% | 20.6% | -2.5% | 48.7% | 12.2% | 45.4% |
| Retail | 26.7% | 1.9% | 27.6% | 4.6% | 1.0% | -4.8% | -5.0% | 10.7% | -25.2% | 41.9% |
| Diversified | 12.2% | 4.3% | 27.2% | -0.5% | 10.3% | -0.1% | -12.5% | 24.1% | -21.8% | 20.5% |
| Infrastructure | 29.9% | 4.8% | 20.2% | 3.7% | 10.0% | 35.4% | 7.0% | 42.0% | 7.3% | 18.6% |
| Timber | 37.1% | 7.9% | 8.6% | -7.0% | 8.3% | 21.9% | -32.0% | 42.0% | 10.3% | 16.4% |
| Mortgage | 19.9% | -2.0% | 17.9% | -8.9% | 22.9% | 19.8% | -2.5% | 21.3% | -18.8% | 14.7% |
| Office | 14.2% | 5.6% | 25.9% | 0.3% | 13.2% | 5.3% | -14.5% | 31.4% | -18.4% | 13.4% |
| Healthcare | 20.4% | -7.1% | 33.3% | -7.3% | 6.4% | 0.9% | 7.6% | 21.2% | -9.9% | 7.7% |
| Lodging/Resorts | 12.5% | 27.2% | 32.5% | -24.4% | 24.3% | 7.2% | -12.8% | 15.7% | -23.6% | 6.3% |
Data for 2021 is as of November 30. Specialty and data center sectors are excluded as this data was only available from 2015 onwards.
Self Storage real estate was the best performing sector for the last two years, and also performed well during the 2015 market correction. It tends to perform well when people’s lives are disrupted, such as when they’re moving for a new job, schooling, or due to marriage or divorce. In the case of COVID-19, self storage got an extra boost from people wanting more space in their home amid remote work.
Timber and Industrial real estate have been in the top three performing sectors for at least half of the last decade. Industrial real estate, a category including properties that enable the production, storage, and distribution of goods, has seen increased demand due to the rise of e-commerce. One estimate says the U.S. could require an extra billion square feet of warehouse space by 2025.
On the other hand, the Lodging/Resort sector has frequently been one of the bottom performers. A form of discretionary spending, hotel stays may be one of the first expenses people cut when the economy is in a downturn. This weakness was compounded by lockdown restrictions during the COVID-19 pandemic.
What is a Good Return on Investment in Real Estate?
In light of the above data, investors may be wondering which sectors are “the best” to invest in.
The short answer: it depends. Here’s how real estate return on investment has varied within sectors, using the minimum, median, and maximum returns. We’ve sorted the data from the highest to lowest standard deviation, a measure of risk.
While Timber and Self Storage have delivered strong returns, they have also been relatively risky, with some of the widest variations in returns.
Industrials have seen the highest median return, and their risk is about middle of the pack. The second highest median return goes to the Mortgage sector, which earns income from the interest on mortgages and mortgage-backed securities. The mortgage sector has seen less risk than most other real estate categories, at least in the last decade.
For investors with a lower risk tolerance, Infrastructure may be a sector to consider. These properties had a positive return on investment for all of the last 10 years, and had the lowest risk of any property sector.
Patterns Within Real Estate Return on Investment
By looking at historical patterns, investors can consider how economic conditions may affect real estate return on investment.
Sectors associated with discretionary spending, such as Retail and Lodging, have tended to perform poorly during downturns. On the other hand, Self Storage and Residential properties have historically been more resilient during the 2015 selloff and the COVID-19 pandemic.
Future trends may also offer food for thought. For example, as the population ages and the government puts an increased focus on critical facilities, could the Healthcare and Infrastructure sectors be poised for growth?
Whichever sector(s) an investor focuses in on, real estate serves as an alternative investment that can help diversify any portfolio.
Markets in a Minute
The Top 5 Reasons Clients Fire a Financial Advisor
Firing an advisor is often driven by more than cost and performance factors. Here are the top reasons clients ‘break up’ with their advisors.
The Top 5 Reasons Clients Fire a Financial Advisor
What drives investors to fire a financial advisor?
From saving for a down payment to planning for retirement, clients turn to advisors to guide them through life’s complex financial decisions. However, many of the key reasons for firing a financial advisor stem from emotional factors, and go beyond purely financial motivations.
We partnered with Morningstar to show the top reasons clients fire an advisor to provide insight on what’s driving investor behavior.
What Drives Firing Decisions?
Here are the top reasons clients terminated their advisor, based on a survey of 184 respondents:
| Reason for Firing | % of Respondents Citing This Reason | Type of Motivation |
|---|---|---|
| Quality of financial advice and services | 32% | Emotion-based reason |
| Quality of relationship | 21% | Emotion-based reason |
| Cost of services | 17% | Financial-based reason |
| Return performance | 11% | Financial-based reason |
| Comfort handling financial issues on their own | 10% | Emotion-based reason |
Numbers may not total 100 due to rounding. Respondents could select more than one answer.
Numbers may not total 100 due to rounding. Respondents could select more than one answer.
While firing an advisor is rare, many of the primary drivers behind firing decisions are also emotionally driven.
Often, advisors were fired due to the quality of the relationship. In many cases, this was due to an advisor not dedicating enough time to fully grasp their personal financial goals. Additionally, wealthier, and more financially literate clients are more likely to fire their advisors—highlighting the importance of understanding the client.
Key Takeaways
Given these driving factors, here are five ways that advisors can build a lasting relationship through recognizing their clients’ emotional needs:
- Understand your clients’ deeper goals
- Reach out proactively
- Act as a financial coach
- Keep clients updated
- Conduct goal-setting exercises on a regular basis
By communicating their value and setting expectations early, advisors can help prevent setbacks in their practice by adeptly recognizing the emotional motivators of their clients.
Markets in a Minute
The Top 5 Reasons Clients Hire a Financial Advisor
Here are the most common drivers for hiring a financial advisor, revealing that investor motivations go beyond just financial factors.
The Top 5 Reasons Clients Hire a Financial Advisor
What drives investors to hire a financial advisor?
From saving for a down payment to planning for retirement, clients turn to advisors to guide them through life’s complex financial decisions. However, many of the key reasons for hiring a financial advisor stem from emotional factors, and go beyond purely financial motivations.
We partnered with Morningstar to show the top reasons clients hire a financial advisor to provide insight on what’s driving investor behavior.
What Drives Hiring Decisions?
Here are the most common reasons for hiring an advisor, based on a survey of 312 respondents.
| Reason for Hiring | % of Respondents Citing This Reason | Type of Motivation |
|---|---|---|
| Specific goals or needs | 32% | Financial-based reason |
| Discomfort handling finances | 32% | Emotion-based reason |
| Behavioral coaching | 17% | Emotion-based reason |
| Recommended by family or friends | 12% | Emotion-based reason |
| Quality of relationship | 10% | Emotion-based reason |
Numbers may not total 100 due to rounding. Respondents could select more than one answer.
While financial factors played an important role in hiring decisions, emotional reasons made up the largest share of total responses.
This illustrates that clients place a high degree of importance on reaching specific goals or needs, and how an advisor communicates with them. Furthermore, clients seek out advisors for behavioral coaching to help them make informed decisions while staying the course.
Key Takeaways
With this in mind, here are five ways advisors can provide value to their clients and grow their practice:
- Address clients’ emotional needs early on
- Demonstrate how you can offer support
- Use ordinary language
- Provide education to help clients stay on track
- Acknowledge that these are issues we all face
By addressing emotional factors, advisors can more effectively help clients’ navigate intricate financial decisions and avoid common behavioral mistakes.
The Top 5 Reasons Clients Fire a Financial Advisor
The Top 5 Reasons Clients Hire a Financial Advisor
Visualizing the Growth of $100, by Asset Class
How Small Investments Make a Big Impact Over Time
What Were the Top Performing Investment Themes of 2023?
-
Infographics2 years agoThe Top Investment Quotes Every Investor Should Know
-
Markets in a Minute2 years agoMapped: The Growth in U.S. House Prices by State
-
Markets in a Minute2 years agoHow Closely Related Are Historical Mortgage Rates and Housing Prices?
-
Infographics2 years agoA Visual Guide to Stagflation, Inflation, and Deflation
-
Markets in a Minute1 year agoMapped: Global Energy Prices, by Country in 2022
-
Infographics3 years agoThe 5 Fastest Growing Industries of the Next Decade
-
Markets in a Minute2 years agoVisualizing Historical Oil Prices (1968-2022)
-
Infographics1 year agoVisual Guide: The Three Types of Economic Indicators
