1. What determines the performance of listed and unlisted real estate vehicles? Use examples from previous cycles to illustrate your answer.

Macro: interest rates, inflation, GDP affect cap rates, debt costs, demand

• Example: Falling interest rates after the 1992 European Exchange Rate Mechanism exit drove a strong real estate recovery across both listed and unlisted vehicles.

Sector: Returns depend on asset class.

• Example: Since 2015, industrial/logistics outperformed retail and office due to the rise of e-commerce and supply chain restructuring.

Geographic exposure: Markets respond differently based on liquidity and policy.

• Example: After the GFC, US REITs rebounded faster than European peers due to earlier monetary easing and stronger capital markets.

Manager skill: Alpha is generated through strategic leasing, development, and capital recycling.

Traded in public markets: Priced daily; highly sensitive to investor sentiment and forward expectations.

High volatility: Reacts sharply to interest rate movements, macro shifts, and equity market trends.

• Example: During the 2007–2009 GFC, listed REITs fell by over 60% within months, well before unlisted NAVs were marked down.

Cycle leadership: leads the cycle by 6–12 months.

• Example: In the 2009–2015 QE recovery, listed RE rebounded quickly due to low interest rates and yield compression.

NAV deviations: Share price often diverges from NAV due to sentiment, liquidity, and risk perception

Liquidity premium/discount: Public trading allows rapid entry/exit but can exaggerate downside

Appraisal-based valuation: lagged NAV updates

• Example: In COVID-19 (2020), NAVs in unlisted funds declined slowly despite sharp declines in public markets.

Valuation lag: Delays adjustment in downturns, potentially misleading investors during crises

Lower volatility but can mask real-time risk

Leverage: higher in value-add and opportunistic strategies; magnify both gains and losses.

Fee drag: layered management & performance fees

Liquidity risk: Capital is locked in; redemptions can be frozen during stress.

• Example: In 2020, several UK open-ended property funds suspended redemptions due to pricing uncertainty and mismatched liquidity.

Cyclical drivers: Short-term factors such as interest rate shocks, pandemics, and financial crises.

• Examples:

  • GFC: Caused severe repricing in REITs.

  • COVID-19: Triggered immediate market corrections in listed RE.

Structural drivers: Long-term shifts affecting sector viability and asset pricing.

• Examples:

  • E-commerce → long-term uplift in logistics.

  • Hybrid working → downward pressure on office demand.

  • ESG & regulatory pressure → green buildings gain value; brown assets face discounts.

Listed RE tends to adjust faster to both structural and cyclical change due to capital market exposure and investor pressure.

Listed real estate is more transparent, liquid, and responsive to market conditions but experiences greater volatility and is influenced by broader capital market flows.

Unlisted real estate offers smoother, more stable returns, attractive to long-term investors, but lags in market adjustments and faces fee-related return drag.

Over multiple property cycles, the performance divergence between listed and unlisted real estate has been consistent, particularly at turning points.

Successful investment and risk management requires understanding how and when each vehicle reacts and recognising when cyclical stocks or structural change demand a different approach.