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Visualizing the Real Estate Investment Universe



This infographic is available as a poster.

Real Estate Investment

Real Estate Investment

This infographic is available as a poster.

Visualizing the Real Estate Investment Universe

From residential property to data centers, real estate investment covers many different sectors.

While office, retail, and residential properties may come to mind first, the investment landscape extends to property types like health care and infrastructure—two sectors that were booming in 2021 as demand for laboratory space increased and facilities underpinning the digital economy expanded.

In this Markets in a Minute from New York Life Investments, we show the scope of U.S. publicly listed real estate investment trusts (REITs) by sector.

How Do REITs Work?

Most often, REITs are publicly-listed investments on a stock exchange. These investment vehicles manage income-producing properties and provide investors exposure to the real estate industry both through the price appreciation of property assets and the income earned through mortgages or leases.

By law, roughly 90% of this taxable income must be distributed to stockholders in dividends.

For instance, an office REIT may own a number of skyscrapers and office buildings that collect leases from tenants. This income from tenants—such as Salesforce or Amazon—would then be distributed to shareholders of the office REIT.

Today, U.S. publicly-listed REITs own 503,000 properties across the country valued at $2.0 trillion.

What are the Different Types of Real Estate Investment?

U.S. listed REITs fall into roughly 17 categories, according to data from Nareit.

Below, we will show each sector based on their earnings in the first quarter of 2022 as measured by funds from operations (FFO). FFO looks at cash flow earned from operations and is considered a broad performance indicator for the industry.

Health Care$1.8B
Self Storage$1.3B
Shopping Centers$1.2B
Free Standing$1.2B
Regional Malls$1.1B
Data Centers$0.9B
Single Family Homes$0.4B
Manufactured Homes$0.3B
All Equity REITs$18.0B

*Measured by Funds From Operations (FFO).
**Specialty includes gaming, outdoor advertising, farmland, and other non-traditional REIT property types. Data as of Q1 2022.

Despite thousands of storefronts being shut down during COVID-19, retail earnings remained the largest across all sectors, at $3.5 billion. In fact, earnings bounced back to pre-pandemic levels during the first quarter of 2022.

As the second largest sector, infrastructure saw $2.7 billion in earnings, rising over 47% compared to the first quarter of 2021. Infrastructure includes wireless infrastructure, fiber cables, and energy pipelines.

Residential, at $2.4 billion, is the third largest sector. Like retail, earnings have exceeded pre-pandemic levels, rising over 19% since the end of 2019.

Overall, real estate investment earnings hit a record $18 billion, driven by sectors hit hardest by the pandemic.

Key Characteristics of Real Estate Investments

Thanks to long-term leases—often between 5 and 10 years—REITs provide stable dividend earnings to investors. In 2021, the average dividend yield of U.S. REITs was 2.6%, more than double the yield of the S&P 500 at 1.2%.

In addition, they are often well-positioned during inflationary environments. As the below table shows, during periods of high inflation REITs average annualized returns were 16%. Even better, REIT earnings increased as inflation levels continued to rise.

Inflation EnvironmentU.S. REIT Price ReturnU.S. REIT Income ReturnTotal Annualized Return
High Inflation (>6.3%)5.3%10.7%16.0%
Moderate Inflation (2.0%-6.3%)6.2%6.9%13.1%
Low Inflation(<2.0%)4.9%5.1%10.0%

Source: Morningstar (Jun 2021). REIT returns represented by the FTSE Nareit Equity REITs Index from Jan 30, 1976 to Jun 30, 2021.

While REITs are often positively correlated with inflation, they often have a low correlation with equities. For this reason, they can serve as a key diversifier when markets take a turn for the worse, potentially reducing the risk profile of your portfolio.

Due to the combination of these factors, real estate investments have proven resilient, with many REITS paying higher dividends than other forms of investments.

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Markets in a Minute

Visualizing Portfolio Return Expectations, by Country

This graphic shows the return expectation gap between investors and advisors around the world, revealing a range of market outlooks.



Visualizing Portfolio Return Expectations, by Country

Visualizing Portfolio Return Expectations, by Country

How do investors’ return expectations differ from those of advisors? How does this expectation gap shift across countries?

Despite 2022 being the worst year for stock markets in over a decade, investors around the world appear confident about the long-term performance of their portfolios. These convictions point towards resilience across global economies, driven by strong labor markets and moderating inflation.

While advisors are optimistic, their expectations are more conservative overall.

This graphic shows the return expectation gap by country between investors and financial professionals in 2023, based on data from Natixis.

Expectation Gap by Country

Below, we show the return expectation gap by country, based on a survey of 8,550 investors and 2,700 financial professionals:

Long-Term Annual
Return Expectations
Expectations Gap
🇺🇸 U.S.15.6%7.0%2.2X
🇨🇱 Chile15.1%14.5%1.0X
🇲🇽 Mexico14.7%14.0%1.1X
🇸🇬 Singapore14.5%14.2%1.0X
🇯🇵 Japan13.6%8.7%1.6X
🇦🇺 Australia12.5%6.9%1.8X
🇭🇰 Hong Kong SAR12.4%7.6%1.6X
🇨🇦 Canada10.6%6.5%1.6X
🇪🇸 Spain10.6%7.6%1.4X
🇩🇪 Germany10.1%7.0%1.4X
🇮🇹 Italy9.6%6.3%1.5X
🇨🇭 Switzerland9.6%6.9%1.4X
🇫🇷 France8.9%6.6%1.3X
🇬🇧 UK8.1%6.2%1.3X
🌐 Global12.8%9.0%1.4X

Investors in the U.S. have the highest long-term annual return expectations, at 15.6%. The U.S. also has the highest expectations gap across countries, with investors’ expectations more than double that of advisors.

Likely influencing investor convictions are the outsized returns seen in the last decade, led by big tech. This year is no exception, as a handful of tech giants are seeing soaring returns, lifting the overall market.

From a broader perspective, the S&P 500 has returned 11.5% on average annually since 1928.

Following next in line were investors in Chile and Mexico with return expectations of 15.1% and 14.7%, respectively. Unlike many global markets, the MSCI Chile Index posted double-digit returns in 2022.

Global financial hub, Singapore, has the lowest expectations gap across countries.

Investors in the UK and Europe, have the most moderate return expectations overall. Confidence has been weighed down by geopolitical tensions, high interest rates, and dismal economic data.

Return Expectations Across Asset Classes

What are the expected returns for different asset classes over the next decade?

A separate report by Vanguard used a quantitative model to forecast returns through to 2033. For U.S. equities, it projects 4.1-6.1% in annualized returns. Global equities are forecast to have 6.4-8.4% returns, outperforming U.S. stocks over the next decade.

Bonds, meanwhile, are forecast to see 3.6-4.6% annualized returns for the U.S. aggregate market, while U.S. Treasuries are projected to average 3.3-4.3% annually.

While it’s impossible to predict the future, we can see a clear expectation gap not only between countries, but between advisors, clients, and other models. Factors such as inflation, interest rates, and the ability for countries to weather economic headwinds will likely have a significant influence on future portfolio returns.

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Markets in a Minute

Recession Risk: Which Sectors are Least Vulnerable?

We show the sectors with the lowest exposure to recession risk—and the factors that drive their performance.



Recession Risk: Which Sectors Are Least Vulnerable?

Recession Risk: Which Sectors are Least Vulnerable?

In the context of a potential recession, some sectors may be in better shape than others.

They share several fundamental qualities, including:

  • Less cyclical exposure
  • Lower rate sensitivity
  • Higher cash levels
  • Lower capital expenditures

With this in mind, the above chart looks at the sectors most resilient to recession risk and rising costs, using data from Allianz Trade.

Recession Risk, by Sector

As slower growth and rising rates put pressure on corporate margins and the cost of capital, we can see in the table below that this has impacted some sectors more than others in the last year:

SectorMargin (p.p. change)
🛒 Retail
📝 Paper-0.8
🏡 Household Equipment-0.9
🚜 Agrifood-0.9
⛏️ Metals-0.9
🚗 Automotive Manufacturers
🏭 Machinery & Equipment-1.1
🧪 Chemicals-1.2
🏥 Pharmaceuticals-1.8
🖥️ Computers & Telecom-2.0
👷 Construction-5.7

*Percentage point changes 2021- 2022.

Generally speaking, the retail sector has been shielded from recession risk and higher prices. In 2023, accelerated consumer spending and a strong labor market has supported retail sales, which have trended higher since 2021. Consumer spending makes up roughly two-thirds of the U.S. economy.

Sectors including chemicals and pharmaceuticals have traditionally been more resistant to market turbulence, but have fared worse than others more recently.

In theory, sectors including construction, metals, and automotives are often rate-sensitive and have high capital expenditures. Yet, what we have seen in the last year is that many of these sectors have been able to withstand margin pressures fairly well in spite of tightening credit conditions as seen in the table above.

What to Watch: Corporate Margins in Perspective

One salient feature of the current market environment is that corporate profit margins have approached historic highs.

Recession Risk: Corporate Margins Near Record Levels

As the above chart shows, after-tax profit margins for non-financial corporations hovered over 14% in 2022, the highest post-WWII. In fact, this trend has been increasing over the past two decades.

According to a recent paper, firms have used their market power to increase prices. As a result, this offset margin pressures, even as sales volume declined.

Overall, we can see that corporate profit margins are higher than pre-pandemic levels. Sectors focused on essential goods to the consumer were able to make price hikes as consumers purchased familiar brands and products.

Adding to stronger margins were demand shocks that stemmed from supply chain disruptions. The auto sector, for example, saw companies raise prices without the fear of diminishing market share. All of these factors have likely built up a buffer to help reduce future recession risk.

Sector Fundamentals Looking Ahead

How are corporate metrics looking in 2023?

In the first quarter of 2023, S&P 500 earnings fell almost 4%. It was the second consecutive quarter of declining earnings for the index. Despite slower growth, the S&P 500 is up roughly 15% from lows seen in October.

Yet according to an April survey from the Bank of America, global fund managers are overwhelmingly bearish, highlighting contradictions in the market.

For health care and utilities sectors, the vast majority of companies in the index are beating revenue estimates in 2023. Over the last 30 years, these defensive sectors have also tended to outperform other sectors during a downturn, along with consumer staples. Investors seek them out due to their strong balance sheets and profitability during market stress.

S&P 500 SectorPercent of Companies With Revenues Above Estimates (Q1 2023)
Health Care90%
Consumer Discretionary81%
Real Estate
Information Technology78%
Consumer Staples74%
Communication Services58%

Source: Factset

Cyclical sectors, such as financials and industrials tend to perform worse. We can see this today with turmoil in the banking system, as bank stocks remain sensitive to interest rate hikes. Making matters worse, the spillover from rising rates may still take time to materialize.

Defensive sectors like health care, staples, and utilities could be less vulnerable to recession risk. Lower correlation to economic cycles, lower rate-sensitivity, higher cash buffers, and lower capital expenditures are all key factors that support their resilience.

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