How do you invest in the real estate of tomorrow confidently today?


Mark Kaspar

Global REIT Leader

Global real estate REITs leader drawing from three decades of experience.

6 minute read 28 Mar 2019

With capital available and alternative structures for real estate trusts emerging, the market has strong growth potential.

Institutional investors have been using real estate investment trusts (REITs), funds and partnerships to invest in commercial real estate for decades. But retail investors are still a relatively untapped, source of capital for the commercial property market.

Two trends should drive growth of retail investment in the real estate market: income in retirement and pensions. Older generations seek income returns and want to preserve their capital in retirement. Meanwhile, the move from defined benefit to defined contribution pensions allows more choice and control when it comes to investment alternatives. With large amounts of capital available for investment in self-directed pension plans, there is a huge opportunity for growth in the REIT market.

While existing REITs are well positioned to capture this trend, the need for infrastructure investment is widely accepted across the globe, and new structures that mirror REITs in many ways are serving as a catalyst for growth in real estate and infrastructure public markets.

Although market conditions in some markets such as the US have not been overly conducive to REIT IPOs of late, globally there were 24 listings in 2018, with Japan and Saudi Arabia being prominent jurisdictions. We expect these developments to drive a steady stream of activity over the longer term. For companies or funds looking to expand their retail investor base, a publicly listed vehicle may complement other private fund offerings. Whether via cross-border structures or domestically aligned REITs, externally managed REIT structures provide an opportunity for fund managers with strong management teams, good track records and suitable back-office infrastructure to diversify their product offering, capture retail capital flows and potentially develop new partnerships to grow their business.

REITs are well positioned to capture value

The signals point to a huge opportunity for the REIT sector to further strengthen its position as a global investment vehicle. While alternative investment vehicles are available, stock exchange-listed REITs will likely remain the predominant choice for most retail investors.

Though the US remains the market leader, 38 countries now offer REITs or REIT legislation in some form. Many are at different stages of maturity but the potential for growth in each market is significant. With 33 million square feet of commercial office real estate, India’s newest REIT offering will likely trigger significant growth in that market and be a significant new entrant in global indices.

Countries with REIT legislation

Nascent Emerging Established Mature
Bahrain Brazil Australia US
Bulgaria Finland Belgium  
Costa Rica Ireland Canada  
Greece Israel France  
Hungary Italy Germany  
India Malaysia Hong Kong  
Kenya Mexico Japan  
Oman Saudi Arabia Netherlands  
Pakistan South Africa New Zealand  
Philippines South Korea Singapore  
Taiwan Spain UK  
Vietnam Thailand    
  United Arab Emirates    

As more money flows into the sector, both REITs and funds will prosper, but there will also be increasing scope for the lines between the two to blur and alternative structures to emerge. Alongside traditional stock exchange-listed REITs, we expect to see externally managed vehicles outside the US, and within the US, as revitalized non-traded REIT market is expected to drive substantial growth of retail ownership in commercial property.

In the past, externally managed REITs have raised questions over fee structures and conflicts of interest. But as these have been addressed or better mitigated, usage has risen in the non-US market. Investors may now access best-in-class management teams from the funds industry, previously exclusively available to institutional investors.

Externally managed cross-border REIT structures are also becoming increasingly common. Singapore’s stock exchange has seen portfolios of US and European assets incorporated into REIT wrappers, broadening Singapore’s role from a regional hub for REITs making cross-border investments in Asia to a global REIT center. For REIT markets that have historically remained domestically focused, this is a significant new development and a timely one as the flow of capital from both East to West and West to East is expected to continue to grow.

In the US, greater use of non-traded REITs is another potential growth area. Fund-raising declined to US$4.5b in 2016 from a peak of almost US$20b in 2013, as non-traded REITs organized around legacy structures increasingly fell out of favor. The entry of a leading global private equity real estate manager in late 2016 has been a catalyst for seismic change in the sector. New sponsors have addressed challenges, with striking results: 63% of all capital raised in 2018 accrued to one manager. Other global managers have since launched similar products as well. There is an estimated US$50b of capital in existing non-traded REITs that is expected to be recycled in the near term; with an estimated US$10b of transactions already occurring in the 12 months to June 2018.The volume of capital raised suggests retail investors are willing to accept a degree of illiquidity in return for access to best-in-class management. We expect to see this market evolving to target the significant volume of retail capital available today.

How will new REIT structures drive future IPOs?

REIT markets globally have seen a steady flow of IPO activity, which we expect will continue over the next 12-18 months. We see several emerging trends as catalysts for activity.

Nontraditional REIT sectors booming


has been invested in US phone towers, health care facilities, data centers, self-storage, timber and single-family trusts.

Historically, real estate investment has been focused in four sectors: office buildings, retail centers, apartment complexes and industrial warehouses. But in the mature US market, the past decade has seen investment in nontraditional real estate taking center stage. Today, mobile phone towers, health care facilities, data centers, self-storage, timber and single-family REITs comprise a market capital of over US$445b. We expect this trend toward a broader range of real estate being adopted into the REIT wrapper to take hold outside the US, particularly across established markets. The strong alignment of many nontraditional sectors to technology will accentuate the pace of growth and change in the composition of REIT markets globally.

A second source of IPO activity will likely be infrastructure vehicles. Worldwide, the need for infrastructure investment is critical to solving widespread economic and social issues. Expanding the use of REIT-like legislation to include more types of infrastructure is not without its challenges, but could be a critical source of growth for the sector. Should governments choose to develop a REIT-like concept to hold infrastructure assets, such a product could:

  • Help create a deeper pool of capital to purchase developed infrastructure assets
  • Accelerate growth in the listed infrastructure market
  • Bring new capital sources to the infrastructure sector
  • Enable governments to design an appropriate regulatory framework for the private ownership of infrastructure assets
  • Help improve transparency in the infrastructure market
  • Deliver added value to investors over the long term
  • Bring tax and regulation of listed infrastructure funds onshore

We will also see more IPOs coming from externally managed vehicles ― whether via cross-border structures or domestically aligned REITs.

For companies across all sectors that own large portfolios of physical assets ― real estate or infrastructure ― the scope to realize value from these portfolios has never been greater. While global market conditions may not be compelling right now, the potential to realize value via an IPO remains and should be on the management team’s radar.

IPOs are complex, challenging and at risk of market movements, but first-mover advantage in less well-represented sectors is still relevant ― the listing of the first cold storage REIT in the US has returned 77% in 12 months. As global REIT markets mature and investors grow increasingly comfortable with the concept of nontraditional real estate, there remains a compelling opportunity for global markets to lead the way with new, well-aligned real estate offerings.


Real estate investment trusts (REITs) are ripe for growth as retail investors present a relatively untapped market.

About this article


Mark Kaspar

Global REIT Leader

Global real estate REITs leader drawing from three decades of experience.