What are the potential benefits of adding REITs to a multi-asset portfolio?

A recently published EPRA research paper, authored by Oxford Economics, on the role of European listed real estate (i.e. REITs and REOCs) within European multi-asset portfolios makes some interesting findings, including:

REITs help - “... a substantial allocation to this [the listed real estate] asset class does generally improve the [multi-asset] portfolio’s risk-return characteristics.”

Low correlation - REITs have a “... relatively low historical correlation with traditional asset classes, implying that listed real estate should have valuable diversification potential.”

Patience is rewarded - the benefits of holding REITs within a multi-asset portfolio “... tend to increase with longer holding periods... as the performance of listed real estate is more comparable to direct real estate holdings over time horizons of several years.”

Outlook - “... the shifting economic and financial landscape could have significant implications for the performance of both European real estate and other asset classes. Our results indicate that a significant allocation to listed real estate will continue to consistently enhance a portfolio’s performance in coming years.”

So, put simply, the findings of Oxford Economics are that REITs are likely to improve returns and lower volatility for multi-asset portfolios.