Market Selection is Less Relevant During the Current Cycle

The right market or the right sector. What matters more to investment returns?

We split the NCREIF index’s markets and sectors into the top and bottom half performers based on total return. Historically, the performance difference between top and bottom performers has been similar for sectors and markets. However, since 2020, it has become increasingly advantageous to choose the right sectors rather than the right markets.

A key reason for this is the yawning gap between the industrial and office sectors in nearly all markets. Because the divergence between office and industrial is so wide, good market selection—which still matters, in many instances—is unlikely to compensate for being overweight to the office sector. Office’s lagging performance is likely to persist for some time; however, skilled asset pickers may outperform the index as unique opportunities come to market.