The latest NFI-ODCE Market Update brought together Accordant Investments’ CIO, Garrett Zdolshek, and Geoffrey Dohrmann, CEO of Institutional Real Estate, Inc. (IREI), for a focused review of the forces shaping core private real estate as the industry approaches 2026. This quarter’s discussion centered on what is changing inside the index—sector weight movements, performance drivers, capital flows, and the continued evolution of liquidity.
Watch the full Q3 2025 NFI-ODCE Market Update Webinar or continue below for a summary of the most important developments and themes the speakers highlighted.
The Q3 2025 NFI-ODCE Index results show a market that is gradually strengthening: quarterly returns remained modestly positive and liquidity conditions continued to improve. At the same time, portfolio repositioning, shifts in sector exposures, and uneven performance across property types are creating clearer signals about how institutions are preparing for 2026. These dynamics were central to this quarter’s conversation and offer important context for understanding how the market is evolving heading into 2026.
The Q3 2025 insights suggest the market continues to stabilize after two years of adjustment. The NFI-ODCE Index delivered a ~0.5% total return, and the trailing one-year return is positive for the third consecutive quarter—an inflection point that historically coincides with early recovery. Underlying portfolio shifts continued this quarter, offering a clearer picture of how managers are positioning for 2026.
Regionally, the West remains the largest exposure, followed by the East and South—consistent with the long-term investment pattern of institutional core portfolios. From a balance sheet standpoint, the underlying funds continue to strengthen, as leverage edged slightly lower in Q3 and equity ratios increased, reflecting stabilizing values. These shifts support a healthier capital position heading into 2026.
The private vs. public market dynamic reinforced improving sentiment this quarter. With public equities hitting new highs, the denominator effect has eased, and many institutions now find themselves under-allocated to real estate.
Over a 15-year period, the NFI-ODCE Index has delivered ~7% annualized returns with significantly lower volatility than public REITs—reinforcing its role as a stabilizing component within diversified portfolios.
While fundamentals show signs of market recovery are emerging, it will likely be uneven. Across previous cycles, the turning point has typically aligned with a sustained move back into positive performance, and that threshold has now been met.
One of the defining features of this cycle is the unusually wide dispersion between outperformers and underperformers. A small number of outsized detractors materially reduced index results:
Managers continue to use this phase of the cycle to reposition portfolios for 2026 and beyond. As values stabilize, many are selectively trimming challenged assets, exiting weaker segments, and increasing exposure to areas with stronger fundamentals.
Earlier in the downturn, sector positioning—particularly overweighting industrial and underweight office—explained much of the performance gap among managers. That dynamic is shifting:
This transition reflects a market moving out of broad-based repricing and into a phase where income durability, tenant credit, market strength, and execution play a greater role in performance.
Q3 fundamentals continued to show signs of stabilizing, with several indicators pointing toward a gradual recovery. While the macro backdrop still presents mixed signals, property-level performance is firming, supply is contracting, and conditions are aligning for stronger NOI growth over the next few years.
Several structural forces are shaping the current environment:
Another driver is digital infrastructure—particularly data centers—which remains one of the strongest subsectors in the index, driven by AI demand and broader digital-economy needs including automation, cloud expansion, and logistics technology. As a result, managers expect continued growth in the “Other” category, which includes data centers and other fast-growing niche property types.
This strength is unfolding alongside a meaningful reset in supply dynamics:
Together, these factors are stabilizing performance, giving managers time for NOI growth to materialize, and reducing the risk of forced selling.
Liquidity conditions continued to improve in Q3, with transaction markets showing more activity and redemption payouts increasing:
Investor flows also moved into a healthier direction. Net outflows were still roughly $2 billion, but this marks an improvement from earlier in 2025. Inflows strengthened, and redemption payouts increased compared to Q2, supported by higher transaction volume. Managers anticipate that higher year-end activity will add additional liquidity to meet redemption queues.
In terms of redemption queues, the NFI-ODCE Index queue continued to decline and now sits at ~12%, significantly lower than its peak. With new redemption requests moderating, rescissions increasing, and payout activity trending upward, Q3 sentiment showed clear improvement from the tariff-driven pressure that defined Q1 and Q2.
Q3 2025 reinforced the consistent message emerging across NFI-ODCE Index managers and institutional investors: core private real estate is entering a steadier phase of the cycle. The sharpest declines now appear to be behind the market, liquidity has continued to normalize, and a meaningful slowdown in new supply is setting the stage for fundamentals to shape the next leg of performance.
Sector divergence will remain a defining feature, and asset quality, location, and income durability will matter more than broad property-type positioning. Managers are preparing for a recovery shaped by NOI growth and reduced incoming supply as the year concludes.
IMPORTANT DISCLOSURES
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The NCREIF Fund Index – Open-End Diversified Core Equity ("NFI-ODCE") is a capitalization-weighted, gross-of-fees, time-weighted return index of open-end core real estate funds with at least 95% of their assets invested in U.S. operating properties and no more than 40% leverage. The ODCE Index is compiled by the National Council of Real Estate Investment Fiduciaries (NCREIF) and is reported quarterly. Indexes are unmanaged, do not incur management fees, costs, and expenses, and cannot be invested in directly.
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