Real-Estate Asset Selection Drove Performance
We analyzed 1,086 real-estate portfolios between Q1 1999 and Q1 2025 and found that asset selection accounted for an average of 67% of the performance differential between individual portfolios and corresponding country-level benchmark returns.1 This long-term trend highlights the outsized impact of individual asset choices on relative portfolio performance when compared to the impact of property type and geographical allocations.
That said, we did see a shift in this dynamic starting around 2015, when divergent returns across property types — most notably the surging outperformance of industrial assets versus the struggles of the retail and office sectors — reshaped the landscape. Between 2020 and 2022, asset selection’s contribution dropped to less than 50% of total tracking error in the U.K. and U.S., underscoring the growing influence of sector-allocation decisions.
Market stress and reversion to the mean
Since the onset of the post-COVID-19 market correction, the pendulum has begun to swing back. The dispersion of individual asset returns within sectors and geographies has widened, once again reinforcing the importance of discerning asset selection.
For institutional investors and their managers, this shift underscores the need to rebalance focus — not just on top-down allocations, but on the granular, bottom-up process of identifying resilient and outperforming assets. In periods of dislocation and correction, the quality, location and characteristics of individual assets matter even more, as does active asset management to drive occupancy, rents and value.
Data since inception to Q1 2025. The chart shows selection’s share of tracking error across all funds per quarter. Selection and allocation scores are calculated per portfolio using each index’s equivalent of a region-by-property-type segmentation. The dashed line represents the overall average selection share of tracking error calculated across all regions/countries shown in the chart over the full period. Source: MSCI Europe Quarterly Property Index, MSCI U.S. Quarterly Property Index, MSCI UK Quarterly Property Index, Property Council of Australia/MSCI Australia Annual Property Index, MSCI/REALPAC Canada Annual Property Index
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1 Attribution analysis distinguishes that part of the relative return derived from the portfolio's weightings in strong or weak sectors of the market (allocation), from that part derived from the performance of the assets in the portfolio within each segment of the market (selection).
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