Rethinking strategic allocations to private real estate debt and equity

In a market environment recently defined by volatility and shifting macro conditions, private real estate continues to stand out as a strategic allocation for institutional portfolios. This insight explores how combining private real estate equity and debt can offer durable income potential, risk mitigation, and diversification benefits. To read the full report, “Private real estate: Navigating volatility through durable, strategic allocations to equity and debt.”

Why private real estate now?

Private real estate investments — both equity and debt — have historically demonstrated low correlations with public markets, making them valuable diversifiers.¹ Invesco Real Estate’s research shows that even during periods of market stress these assets have delivered attractive levels of income and are further enhanced through tax efficient structures such as REITS.² Historically, bottoms in real estate equity valuations are preceded by a loosening of commercial real estate lending standards, which we have been loosening since 2023. We believe this shift in credit conditions and asset prices shapes a compelling reason to re-evaluate allocations to real estate. For more information about the benefits of private real estate, read “The historical benefits of US private real estate.”

Complementary roles of private real estate equity and debt

While private real estate equity focuses on total return and capital appreciation, private real estate debt strategies emphasize income generation and downside mitigation. In our opinion, together, they form a balanced allocation that can enhance portfolio resilience.

Improving the 60/40 portfolio

Incorporating private real estate into a traditional 60/40 portfolio has historically shown potential to increase yield, reduce volatility, and improve risk-adjusted returns. A 20% allocation — split between private real estate equity and debt — can make a meaningful difference in portfolio efficiency.

Explore the full paper to dive deeper into the data, strategies, and portfolio applications of private real estate equity and debt “Private real estate: Navigating volatility through durable, strategic allocations to equity and debt.”