Real estate sits alongside equities, fixed income and cash as one of the major asset classes. What sets it apart is the combination of a tangible, income-producing underlying asset and returns that come from two distinct sources. Understanding those sources, and how property behaves relative to other assets, is the starting point for deciding what role it should play in a portfolio.
How real estate generates returns
Property returns come from income and capital growth. Income is the rent paid by tenants, which for many assets rises over time through fixed or inflation-linked lease escalations. Capital growth is the change in the value of the building itself, driven by rental growth, demand for space, and the cost of building new supply. For listed real estate, these returns reach investors as distributions and as movements in the share price.
Why investors hold real estate
Investors typically hold real estate for three reasons. The first is income: well-let property produces a relatively steady stream of rent. The second is diversification: property returns do not move in lockstep with equities or bonds, so adding it can change the overall risk profile of a portfolio. The third is inflation linkage: because rents and replacement costs tend to rise with inflation, property cash flows have historically held their real value better than fixed nominal income over long periods. None of these is a guarantee — all investments carry risk, and property values and income can fall.
Listed and unlisted access
Real estate can be accessed directly, through unlisted funds, or through listed securities. Listed real estate provides exposure to the same asset class with daily liquidity and lower minimums. Quay invests in global listed real estate with a real-return objective, focusing on entities with sustainable, growing rental income.
Frequently asked questions
- Is real estate a good diversifier?
Real estate returns have, at times, historically had a lower correlation with equities and bonds than those assets have with each other, which is why it is often used for diversification. Correlations vary over time and can rise during market stress.
- Does real estate provide income?
Yes — rental income is a defining feature of the asset class, and for listed real estate it reaches investors as regular distributions. Income is not guaranteed and depends on the performance of the underlying assets and tenants.