December 2025 Stakes Rise: Investors Push More into Real Estate in Alternatives

According to a report by Alternatives Watch from December 30, 2025, allocators directed $10.9 billion across real estate, private equity/venture capital, hedge funds, infrastructure and credit in December, with real estate’s share growing notably. [1] Key institutional investors include CPP Investments, New York State Common Retirement Fund, and several state systems. [1] This marks a modest increase over December 2024’s $10.2 billion, when private equity had led. [1]

Complementary insights from the Hodes Weill & Associates and Cornell University Institutional Real Estate Allocations Monitor survey show that institutions continue to pull back target allocations to real estate—from an average of around 10.8 % to approximately 10.7 % in 2025. [4] Actual allocations are trailing targets, creating a gap of roughly 90 basis points. [4][7] Returns in the class averaged +1.4 % in 2024, recovering from –1.4 % in 2023. [4] Despite this underperformance, institutions are signaling renewed optimism, driven by expectations of rate cuts, improved inflation trends, and signs of stabilization in transactional and valuation metrics. [4][7]

Strategically, there is a clear preference emerging toward “flight to quality” real estate strategies. Core and core-plus strategies are growing in appeal, while opportunistic mandates—though still in demand—are seeing less growth. [4] Interest in real estate credit has moderated; 51 % of institutions report plans to allocate to credit strategies in 2025 versus 63 % in 2024. [4] Vehicles allowing greater control (joint ventures, separate accounts, direct investment) are also gaining traction. [4]

These dynamics suggest a sector in transition: cautious yet constructive. The under-allocation gap and rising conviction imply potential for increased capital deployment, especially if macro conditions—such as interest rates, inflation, and transaction volume—continue to improve. However, headwinds from past performance, liquidity constraints, and macroeconomic risks (geopolitics, rate uncertainty) remain important limiting factors. For investors and managers, this means selective execution, renewed focus on non-core/niche strategies, and an emphasis on manager performance and fee discipline will be critical.

Open Questions:

• Will anticipated rate cuts and easing inflation in 2026 lead to materially higher returns across real estate, or merely stabilize existing stress?
• How will global investors—especially those from APAC and EMEA with shifting cross-border preferences—balance domestic versus international real estate allocations? [4][7]
• Which niche real estate sectors (life sciences, data centers, housing etc.) will deliver superior risk-adjusted returns in the face of rising capital and valuation pressures?
• To what extent will vehicles that offer greater control (JV, direct, separate accounts) displace traditional blind‐pool closed-end funds as preferred investment channels?