This is a sponsored article from Nuveen.

Allocators globally are increasing their allocations to private real estate as a diversifying asset. But for private wealth investors looking to do the same, considerations like sector, vintage year and macro trends can help inform a successful investment.

A global spike in volatility in 2025, especially in the US market, saw investors searching for new opportunities that offer the prospect of steadier returns, notably in areas such as private real estate. After two years of challenge, MSCI reports in the first quarter of the year suggested a stabilisation of real estate capital values and total returns turning positive, positioning the asset class as a resilient and stable investment. CBRE’s 2025 Investor Intention Survey indicates that 46% of allocators expect an increase in investment to real estate – a significant jump from 26% in 2024.

According to Shawn Lese, chief investment officer and head of funds management at Nuveen Real Estate, there are fundamental reasons for the spike in investor interest across both institutional and private capital. 

“From a cyclical perspective, we’re at an attractive point to get into real estate,” he said. “Valuations have reset dramatically, oversupply issues in sectors like industrial and multifamily are largely behind us, and demand remains strong.”

Non-listed real estate plays a critical role in multi-asset portfolios for investors seeking diversification and stable returns, according to research from trade body INREV. Unlike listed real estate, which tends to behave more like equities, non-listed vehicles offer low correlation with both stocks and bonds, making them a more effective diversifier.

Open-end core funds, in particular, are a strong substitute for direct investments, without the same transaction costs or operational complexity. INREV’s data supports a strategic allocation to real estate of 10% to 20% over the medium to long term for institutional investors, with non-listed options offering a smoother ride and better downside protection than either publicly traded real estate investment trusts (REITs) or other alternatives, such as private equity and hedge funds.

Building a resilient real estate allocation

The makeup of a successful real estate portfolio is shifting, however. Lese points out that investors can no longer rely on “beds and sheds”, also known as multifamily and industrial. “Retail has seen no new supply in years. Vacancies are low, rents are rising and demand is picking up,” he said. “Alternatives, such as data centres, senior living and medical office buildings, are also gaining traction due to powerful macro trends: technological transformation and an ageing population. Those are demand drivers you can’t ignore.”

The spike in data centre development, in particular, has been a theme of the past year, as the AI investment boom has created exploding demand for computational power.

“Looking ahead, the investment outlook for European data centres remains highly positive,” wrote Lydia Brissy, director of European research, and Cameron Bell, director of EMEA data centre advisory, at Savills. “Demand for capacity is set to continue to rise, fuelled by AI-driven workloads, expanding cloud services and digitalisation of industries.”

The macro trends of technological transformation and an ageing population are demand drivers you can’t ignore

Research backs up the global reach of these megatrends, with Nuveen’s Global Real Estate Outlook 2025 report citing longer-term opportunities across retail and data centres, particularly in Europe. Yet sector diversity is only one piece of the jigsaw. A thoughtfully constructed real estate allocation will also balance exposure across geographies, risk profiles (core, value-add, opportunistic) and vintages. “Geographic diversification is critical to managing risk,” said Lese. “Economic cycles, political and regulatory shifts, and demographic changes all vary regionally.” The structure of the investment is also key. Core strategies offer steady income and stability, while value-add or opportunistic investments can offer upside in more volatile conditions. “There’s a role for each within a balanced portfolio,” Lese added.

Balancing liquidity with long-term objectives

One characteristic of unlisted real estate that might constrain allocations is the relative lack of liquidity compared with listed equities or exchange-traded REITs. According to Lese, this is where emerging vehicles, such as new-generation non-traded REITs, can play an important role.

“The latest generation of non-traded REITs does a good job of balancing investor demand for liquidity with the illiquid nature of real estate,” he said. “They use structures like credit lines, cash sleeves and redemption gates to manage liquidity thoughtfully and protect the portfolio.” Non-traded REITs, as these vehicles have come to be known, can offer increased liquidity, but they should still be considered illiquid assets in the context of a portfolio, noted global investment manager Cohen & Steers in a 2023 real estate report: “Monthly or quarterly repurchase programmes offered by NAV REITs provide periodic liquidity to investors, subject to certain limitations, without requiring the sales of assets or a corporate liquidity event. What’s more, perpetual, open-ended structures provide more favourable terms and better alignment with investor interests.”

Vintage year diversification – the practice of staggering the launch year of the various real estate funds in a portfolio – can also be a useful tool in managing liquidity and risk. However, Lese said, the desire for a variety of vintage years should not hold investors back from entering the market at an attractive point such as the current one. “Vintage year diversification is important. It protects against concentration risk tied to current market conditions. That said, when you’ve had a dramatic value reset like the one we just experienced, it can also be a very attractive time to enter the market.”

The case for selective participation

While timing matters, a stronger determinant of long-term performance is structure and selectivity. Real estate allocations built on deep market insight, structural flexibility and diversified risk exposure are more likely to withstand shocks and deliver for beneficiaries over time.

“Experienced private asset allocators know – and the data supports – that picking the right manager is far more important than anything having to do with vintage. And the good news is that picking the right manager is achievable,” wrote Stephen Nesbitt, CEO and CIO at Cliffwater, an alternative investment firm, for the Chartered Alternative Investment Analyst Association. “Allocators need to ignore the vintage voodoo that usually does more harm than good, and, instead, search out private asset vehicles that will keep their capital invested with top-tier managers.”

As private wealth investors revisit their strategic asset allocations in 2025 and 2026, real estate is increasingly viewed not just as a tactical play but as a cornerstone of portfolio resilience. From managing liquidity to embracing new sectors and structures, a properly thought-through real estate strategy can weather the volatility of turbulent times and thrive.

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This content was originally paid for by Nuveen and produced in partnership with the Financial Times Commercial department.

This is a sponsored article from Nuveen.