On September 1, 2016, Standard and Poor's (S&P) elevated Real Estate to a separate sector within the Dow Jones Global Industry Classification Standard (GICS). This is the first reclassification since GICS was created in 1999.

GICS is one of the primary classification systems used by investment managers. It provides a system of organization for funds, exchange-traded funds (ETFs), and other investment products. It also helps investors, financial advisors, and economists evaluate the performance of investment products and the economy as a whole.

There are two main types of real estate investment trusts (REITs):

Equity REITs were previously classified as an industry group under the Financials sector before recognition of a new Real Estate sector. Mortgage REITs will remain in the Financials sector.

Over the past 25 years, the total equity market capitalization of listed US equity REITs grew from $9 billion to more than $1 trillion. REITs were first included in the S&P indexes in 2001. Real Estate represents nearly 4% of the equity market capitalization of the S&P 1500.

Most REITs survived the great recession of 2008, and fared better than large banks and other types of institutions that went bankrupt. REITs outperformed many other sectors during that time, even though that crisis was largely caused by the collapse of the real estate housing market.

REITs make up approximately 98% of the Real Estate sector. The other 2% is made up of real estate management companies and brokerage companies. As of August 2016, the S&P 500 included 26 REITs. Real Estate is now the eighth largest of the 11 headline sectors within GICS.

The equity REIT classification also includes various sub-industry REIT classes for ease of comparison across varying property types, including:

The addition of REITs as a stand-alone sector will enhance the general understanding of REITs as analysts review and evaluate industry-specific financial information and rules.

It is likely that the decision to include Real Estate as a headline sector will encourage investment in equity REITs from generalist investors and investment plans. An increased and diversified investor base may ease the severity of cyclical real estate market fluctuations, which could benefit the overall economy by lowering volatility and increasing liquidity.

This stand-alone sector for real estate demonstrates the importance of real estate and real estate investment to the overall economy. It also acknowledges the principal differences between real estate companies and other types of businesses.

For more information on REITs, see: