Institutional Real Estate Investor, 2015
Regardless of the asset class, the ability to generate superior investment performance is the measurement that separates good investors from great investors. In most asset classes, performance is easily compared and contrasted against a commonly agreed upon investment universe or an appropriate index of investment opportunities. But in private real estate, investors face the dilemma of attempting to evaluate performance without the benefit of a commonly agreed upon benchmark, as globally-comprehensive real estate return comparisons still remain elusive.
This article, which is based on a larger Partners Group research piece, examines the indices available to today’s global real estate investor and aims to give an overview of their origins, their comprehensiveness, and their strengths and weaknesses. However, it is our belief that despite greater real estate index availability today than ever before — with differing constituent sets, fund strategies, property type inclusion parameters and regional characteristics — absolute returns comparisons often provide investors with the most pragmatic solution to benchmark the performance of their real estate portfolios. The absolute return benchmarking approach evaluates the return of a property over a certain period of time relative to a fixed target number and is a methodology with the significant advantage of simplicity.