The manager of Norway’s giant oil fund is arguing in favour of private rather than public real estate investments for long-term investors.

In a “discussion note” on the diversification potential of real estate published by Norges Bank Investment Management (NBIM) today, the fund said unlisted vehicles as well as direct holdings in bricks and mortar provided more diversification benefits than listed, and that there was little proof listed real estate was a good inflation hedge.

The manager said: “Research supports the existence of a specific real estate factor for private real estate, which reflects real­-estate-specific risk and is independent of equity­ or bond-­related factors.”

It said this was “highly relevant” for the construction of investment portfolios based on fundamental factors.

NBIM, which runs Norway’s NOK7trn Government Pension Fund Global (GPFG), released two discussion notes today on property investment and global trends and their impact on the asset class.

NBIM challenged the notion that all real estate returns were a natural hedge against inflation, as rents tended to be linked to inflation.

“Academic studies generally support inflation­-hedging properties for private real estate but not for public real estate investments,” it said.

Although there is strong empirical evidence of the inflation-hedg­ing abilities of private real estate, there is “significant evidence listed real estate does not provide immediate inflation hedging”, it said.

Even though investments in listed real estate companies are sometimes seen as an alternative to private real estate investments offering better liquidity, from a portfolio perspective, it said, whether private investments can be substituted with public ones depends on how similar their return characteristics are.

These characteristics are returns and volatilities, and, even more importantly, correlations with other investment opportunities, according to the note.

In its analysis of how global trends would affect real estate investment over the next few decades, NBIM looked at globalisation, technological progress, sustainability, demographic changes and urbanisation.

It singled out Asia as a good destination for property investment in the future because of population growth.

The fund last month said it was opening an office in Tokyo to invest in Japanese real estate.

“Overall, a considerable population growth, combined with positive wealth effects and urbanisation, appears to favour emerging markets, particularly in Asia,” the manager said.

Considering the trend towards technological change, NBIM said that, although e-commerce is shrinking overall demand for physical retail space, it is also intensifying the showroom function of shops in prominent locations.

“Logistics space is also likely to benefit from direct delivery of goods to consumers,” it said.

NBIM said making buildings more sustainable could generate a premium in terms of return for the investor.

A premium would come in the form of higher rents, lower operating costs and higher occupancy rates, it said.

On top of higher cost efficiency, demand for “green” space is being driven by considerations related to tenants’ reputation, it said.