U.S. core real estate shows signs of life, but macroeconomics clouds the outlook

U.S. core real estate is showing tentative signs of recovery, though Pensions & Investments warns that macroeconomic headwinds could erode recent gains. The NFI-ODCE, a widely followed benchmark for open-end diversified core equity funds, posted a 2.9% net return in 2025 and 3.9% in the first nine months of 2026. These figures follow steep losses of -12.7% in 2023 and -2.3% in 2024. Most of the 2026 return came from income rather than property appreciation, a composition that points to a yield-driven recovery rather than a broad revaluation of assets.

Allocator activity has been more resilient than performance alone would suggest. Per Preqin data cited by Pensions & Investments, U.S. core real estate fundraising has exceeded $10 billion annually since 2024, with $14 billion raised in the first 10 months of 2026 compared with $18 billion for all of 2025. Institutional hiring activity has also held up. Through the end of October, 11 mandates totaling $1.5 billion had been reported, and mandate sizes historically have ranged from $1.1 billion to $3.5 billion.

Assets under management moved in the opposite direction. Core real estate AUM for U.S. institutional tax-exempt clients, including pension plans, defined contribution plans, endowments and foundations, fell 1.4% year over year to $391.4 billion as of June 30, according to Pensions & Investments' annual survey. Core strategies represented 78% of total real estate AUM among firms that broke out the category by strategy.

The outlook remains clouded. Pensions & Investments notes that a high interest rate environment, potentially slowing spending and the effects of tariff policy could weigh on the sector and reverse recent returns.