The performance of institutional real estate funds results from both allocation and selection components, with neither of the two dimensions clearly dominating. This is the result of an analysis of real estate fund data based on a regression-based attribution model with sectoral and regional benchmarks, which was carried out by REAX Advisory GmbH in cooperation with the RheinMain University of Applied Sciences, M.Sc. in Real Estate. As part of Sandy Jibrow’s master’s thesis, data from the years 2017 to 2024 were evaluated.
The starting point was the question of whether an above-average fund return is primarily due to market positioning (regional and sectoral allocation) or to targeted property selection and management performance (selection). Methodologically, an attribution approach was developed that takes into account sectoral and regional benchmarks and condenses them into a combined ranking of funds. In addition, fund-specific characteristics such as property structure, size classes and management characteristics were included in the analysis in order to show relationships between these factors and the fund’s performance. The results show that overperformance cannot be explained by allocation or selection alone, but is caused by an interaction of both factors. Some sectors and regions proved to be more stable over time, while others proved to be more volatile.
In addition, the analyses indicate that targeted selection decisions and management competence make an independent contribution to value development. It is also striking that certain structural characteristics of the funds, in particular the number of properties and the market value structure, are systematically associated with better ranking positions. The study thus contributes to the understanding of the return drivers in the real estate fund sector and provides implications for investors who should take into account both macrostructural market decisions and internal selection and management aspects.
Professor Dr. Leo Cremer, who accompanied the master’s thesis as a speaker, says: “Not only the choice of markets, but also the choice of specific properties proves to be relevant for the fund’s performance in the analysis. Good management teams manage to generate additional income over the years with their property selection.”
Annika Dylong, Managing Director of REAX Advisory, points out the practical implications of the work: “In view of the ongoing discussions on manager quality, this thesis once again makes it clear that not only the location and market development are of central importance for the return of real estate funds. Rather, good manager performance can also make the decisive difference and lead to individual real estate funds performing better than others in relative terms.”
