Why this is an active manager’s market in listed property

We set out the case for global listed property in Mispriced and overlooked, global real estate may be next to run. Among global real estate investment trusts (GREITs), valuations are growing, earnings are improving and, across most commercial property sectors, supply is constrained.

For investors keen to take advantage of these dynamics, who appreciate the defensive qualities of particular property types and the prospect of relatively attractive risk-adjusted returns, there is a more urgent question: how best to access the opportunity?

It would be opportune at this point to raise a vested interest. As an active GREIT funds manager, we would naturally make the case for active management. Nevertheless, the facts speak for themselves, this is an active manager’s market. In this article, we’ll explain why the Dexus Global REIT Fund portfolio is well placed to take advantage of it.

1. Dispersion creates opportunity

In 2025, performance dispersion, the spread of investment returns from their average across global REITs was unusually wide.

Country returns ranged from low single digits to more than 25%. Sub-sector outcomes spanned from negative mid-single digits (residential) to almost 30% (healthcare).

Country Performance CY2025

This is not typical of a market moving in lockstep on macro factors. Instead, it reveals significant differences in Global REIT portfolios and their respective balance sheet strength and management quality. Index returns hide a good part of this story. The average is rarely the most attractive part of the market.

These are not circumstances in which index funds do well because selection is critical to performance. Active managers are forward looking; index funds are built on a view of the past. In performance terms, that contrast is usually most evident when the cycle turns. We believe we have reached such a point.

2. The limits of Index investing

It is a mathematical inevitability that global REIT indices are biased towards large-capitalisation stocks. The chart below makes this case. About 72% per cent of the benchmark’s weighted average is in companies with market capitalisations of over A$9.5 billion.

Weighted average market cap (AUD)

These are the most researched and widely owned securities in the sector. They also tend to be held across multiple passive vehicles and large institutional mandates. While this concentration can dampen mispricing, it can work the other way, too. Balance sheet weaknesses or structural challenges can be embedded in index exposures at precisely the wrong point in the cycle.

As the chart shows, the Dexus Global REIT Fund has significantly higher exposure to small and mid-capitalisation stocks that are under-represented in indices and under-covered by research houses. This is where valuation anomalies are more likely to arise. Indeed, this is where we are finding the best opportunities.

3. Capital preservation focus boosts total returns

The Fund’s objective explicitly emphasises lower volatility, steady income and capital preservation alongside total returns. Capital growth is an important but secondary consideration.

The latter, however, works in concert with the former. In 74% of down markets since inception, the Fund has outperformed the benchmark. This isn’t relevant just to income-focused and risk-averse investors. Avoiding permanent capital impairment during weaker periods compounds over time. It boosts performance.

Periodic Fund vs GPR 250 REIT Net Index*

To 31 December 2025, the Dexus Global REIT Fund has delivered an 8.66% annualised total return since inception on 1 April 2020. This compares favourably to the GPR 250 REIT Net Index (AU) with a comparable total return of 6.93%. These figures, achieved with a focus on capital preservation, are a product of the flexibility that active investing allows. Our current positioning, for example, reflects a willingness to be underweight in areas where expectations appear elevated and overweight in segments where supply constraints and demographic trends are working in our favour. This allows us to target low teens total returns over the coming years whilst maintaining our mandated concentration on capital preservation.

4. Direct markets are validating value

One of the strongest pieces of evidence that our portfolio positioning and composition can deliver on these targets comes beyond the public market.

Direct commercial real estate transaction volumes are improving along with private capital fundraising and debt issuance, as we noted in part 1. But, as the table below shows, there has also been a steady stream of value affirming, take-private transactions and corporate activity in listed property.

Source: FactSet, DXAM

These aren’t theoretical valuation exercises. Private buyers, with long-term capital and detailed asset knowledge, are willing to pay more than the value public markets have ascribed to these assets.

Index funds capture such outcomes only in proportion to their index weights. As an active manager with a 75% active share at the stock level, we capture them more fully and are positioned to do so.

5. Historic discount offers a great opportunity

Global REITs have underperformed global equities for four consecutive calendar years, a record stretch over more than three decades of data. Relative to equities, the sector now trades significantly below historical averages.

In this environment, passive index funds ensure investors own the market’s aggregate exposure, warts and all. Active management helps us concentrate investor capital on companies with defensible cash flows, prudent leverage and exposure to sectors with constrained supply. It also allows us to purchase those GREITs offering the biggest valuation discounts.

The return profile

The best opportunities in global listed property often don’t exist or aren’t material among index ETFs. Dispersion across countries, sectors and individual securities is high. Direct market transactions are validating private values above listed prices while balance sheet strength and asset quality differ markedly.

For investors seeking increased property exposure, with an emphasis on income and capital preservation, this is not a time to own the average. It is a time to be selective.

This is an environment tailor-made for the Dexus Global REIT Fund. The combination of income, valuation support and improving fundamentals among a defensively constructed portfolio of under-researched stocks bolsters our expectation for annual total returns in the mid-teens.

In the next and final part of this series, we’ll examine a few stocks that demonstrate our approach and indicate where we hope to secure such returns.