Its historically low correlation with other asset classes is a real benefit. Our analysis shows that in the past direct real estate returns have had only a fairly weak link with government bonds and credit, and a weaker one still with global equities (see Fig. 1). In our experience, the correlation of returns is even lower for what are known as “value-add” real estate investments – assets which require management and/ or structural improvements. Here, investors are not just relying on rental income and passively rising property prices to generate returns but are actively creating them by improving the purchased buildings. Such improvements can include renovations or refurbishment, change of use (to reflect shifts in occupier dynamics, such as the rise of online shopping or a fashion for health), as well as restructuring lease agreements. Value-add portfolios can also include some construction projects.

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