A Brief History: Why Real Estate Is Different, and Built for Resilience

With headlines focused on declining property values and investor uncertainty, it’s worth stepping back and considering what makes real estate distinct. It isn’t just another asset class; it has been a driver of wealth creation since long before modern financial markets existed.

Nearly 12,000 years ago, during the Pleistocene era, humans across various parts of the world began to use land to grow crops and raise livestock. From the Fertile Crescent in Mesopotamia and Egypt to the Yangtze and Yellow River basins in China, and into parts of South America, people started, independently and collectively, to unlock the commercial value of the land they lived on.

Over time, villages, roads, and eventually bridges were built. That land began to take on value and, arguably, became what we now consider real estate and infrastructure.

It would be another 13,000 years before the Dutch East India Company became the first publicly listed company on the Amsterdam Stock Exchange in 1602. At that point, the global value of real estate still far exceeded the market capitalization of any single public company.

Fast forward to today, public equities dominate most investor portfolios. Why is that?

The example below illustrates one commonly recommended asset allocation model for individual investors.

Roughly 54% is allocated to domestic and international public equities, 40% to bonds, and just 6% to REITs (which are still publicly traded stocks). This disconnect between actual wealth distribution and investor portfolios is striking, and it explains why many investors are underexposed to real estate despite its enduring value.

However, this raises a question. After thousands of years of human development and growth, how are the world’s assets actually allocated?

This is not an easy question to answer. Asset classes such as private businesses and art are difficult to measure at a global level. Nonetheless, the chart below offers a 2020 estimate of global asset values. The 2025 numbers are likely about 20% higher. Even so, we can see that global real estate is roughly three times the size of all global equity markets and about 30% larger than global debt and equity markets combined.

It should also be noted that as much as 50% of households globally rent their homes. Those homes are therefore part of the investment portion of the real estate market.

It is commonly believed that stocks outperform all other asset classes over long periods. That has been true in many historical periods, but those returns typically come with higher volatility. When you zoom out further, research from the National Bureau of Economic Research (2015) showed that in many countries, real estate, using rental housing as a proxy, has matched or exceeded equity market returns over very long periods.

More recent data from The Motley Fool compared returns for the S&P 500 and the U.S. REIT Index (NAREIT) going back to 1972. REITs outperformed for most of the 52-year period, with the S&P 500 outperforming only in the last decade, following the dot-com bubble and the global financial crisis.

This data shows that investment real estate—commercial, industrial, rental housing—can be competitive with equity markets when it comes to generating long-term wealth for investors. Institutional investors have known this for decades. For example, Canada’s top pension plans, often referred to as the “Maple 8,” have, on average, only about 25% of their capital allocated to public equities.

At the same time, their allocations to real estate and infrastructure, which include income-producing, value-added real estate, range from 18 to 38% of their invested capital. Their long- and medium-term returns have been widely regarded as among the most resilient in the global pension landscape. Below, we compare their performance alongside our own Nicola Core Portfolio Fund.

Even with all of this, we should ask: what actually makes real estate different from other asset classes?

If I had to use one phrase, it would be cash flow. A much higher percentage of the total return on real estate typically comes from net rental income than is the case with equities and their dividends.

As of December 2024:

• The dividend yield for the S&P 500 was 1.27%.
• For the Nasdaq, it was slightly higher at 1.33%.
• The historical average yield for the S&P 500 from 1960 to 2024 was 2.9% (YCharts).
• The dividend yield for the U.S. REIT Index (NAREIT) was 4%, and the TSX REIT Index was 4.6%.

Studies have shown that income from stocks and real estate is three to four times less volatile than the prices of the stocks or properties themselves.

So why, and when, would it be more advantageous to receive a larger portion of your return in regular monthly or quarterly cash flow, rather than relying on a potentially higher sale price sometime in the future?

• There is less risk for you as an investor when more of your return arrives as cash earlier. In real estate, much of this early rental income is also tax-deferred due to depreciation on the underlying property.
• If you choose to reinvest that income through a dividend reinvestment plan (DRIP), you are able to buy more units. That is even more beneficial when prices drop. My own experience illustrates this.

One of my investments is in the Nicola U.S. Real Estate Limited Partnership (NUSRELP), which is designed to provide monthly income from rents and long-term appreciation. Since my initial investment in 2011, it has delivered a net return of 9.23% per year. Roughly 4.5% of that comes from monthly rental income.

I reinvest this income each month through a DRIP to acquire more units.

In the past two years, real estate prices have declined, largely due to higher interest rates, rising cap rates, and shifts in demand and supply. All asset classes experience these types of cycles over time.

In this case, the NUSRELP unit price dropped from $202.29 in August of 2023 to $177.68 in April of 2025, a decline of just over 12%. While that may seem negative, especially when viewed in isolation, it is far less severe than what is typical in an equity bear market.

Meanwhile, rental income per unit increased by 7.6% over that same period. That tells me the properties are performing well in terms of occupancy and rent growth.

Because of this, I was able to acquire 22.6% more units each month through my DRIP. In my opinion, this is how true wealth is built. Lower prices are not, by themselves, a reason to sell any asset. If the investment continues to generate stable or growing cash flow, that is usually a reason to hold or even increase your position.

We have a number of clients who have built substantial wealth through real estate. They rarely sell. Instead, they typically use their rental income to acquire additional properties. Occasionally, they may refinance to extract tax-free capital.

Our own pools allow us to replicate both of these strategies for investors.

As the title of this letter suggests, real estate is different from other asset classes. It has historically been a way great fortunes have been built; steadily, patiently, and with discipline. In a market filled with noise, it pays to focus on what doesn’t change, income you can count on, and ownership that compounds over time.