The Global Industry Classification Standard (GICS) reclassification of real estate to its own headline sector provides opportunity for growth and expansion during a time of complicated asset pricing and cycle longevity concerns. As over $1 trillion in real estate securities break apart from the former headline under the Financials sector, the new validation is expected to bring an estimated additional $100 billion of liquidity into the industry.
According to JLL’s latest whitepaper, Real Estate makes the roster, the exposure and enhanced transparency into the industry, as a result of the reclassification, is likely to increase interest from institutional investors, individual investors and financial advisors who will be more likely to make long-term strategic allocations based on a better understanding of the product.
As a standalone sector, real estate securities will no longer be stricken by rapid shifts in sentiment in reaction to global events and will more likely be judged by their own unique fundamentals. Further, reclassification could help moderate the severity of real estate market cycles, as the long-term performance of REITs is underpinned by commercial real estate properties and market cycles that move very differently from other assets over time.
Increased liquidity will flow into the sector as institutional portfolios and equity funds reallocate capital to better meet real estate allocation targets, currently projected as being 110 basis points below target allocations. Additionally, listed equity REIT offerings will likely evolve to satisfy the increased appetite by investors, resulting in new products coming to the market, potential new IPOs, and existing REIT consolidations.
What’s next for real estate in this reclassification?