Real estate investment trusts (REITs) generated higher returns compared with direct real estate over a 20-year period, according to a new study from Maastricht University.

Real estate investment trusts (REITs) generated higher returns compared with direct real estate over a 20-year period, according to a new study from Maastricht University.

Between 1990-2009, REITs delivered average gross total returns of 10.92% compared with 6.7% for direct real estate. The findings are based on a study of how pension funds invest in real estate across the globe.

Commenting on the conclusions, Philip Charls, CEO of the European Public Real Estate Association (EPRA) said the study was the first on a global scale that confirms what the listed real estate industry has been saying for a long time: ‘Pension funds have been potentially losing hundreds of millions of dollars and euros in returns for their members by not choosing the most transparent, liquid, low cost and best performing form of property investment over the long-term.’

Charls added that the research should be a ‘wake-up call’ to governments. ‘If they do not create the right regulatory conditions for REITs to thrive, they may be depriving retirees of a high-yielding source of income, backed by hard assets, that is in desperately short supply in the current investment environment.’

The study also found that gross returns on internally managed real estate assets - averaging 7.7% - were almost one percentage point higher than the returns on external mandates. Switching from internal real estate management to complete external management also results in a 21 basis points (bps) increase in investment costs, the study found. A complete switch to fund-of-funds would increase costs by 122 bps. The costs of investing in direct real estate were also significantly higher than for REITs - 83 bps versus 41 bps.