Analyzing and Investing in REITs for Institutional Portfolios

As an investment manager, you have been asked to provide an analysis of Real Estate Investment Trusts (REITs) for a group of institutional investors. REITs can provide a unique investment opportunity within a diversified portfolio due to their characteristics of liquidity, income generation, and potential for capital appreciation.

Discuss the key advantages and disadvantages of investing in REITs, paying special attention to their impact on portfolio diversification. Additionally, analyze how macroeconomic factors such as interest rates, inflation, and economic growth might influence the performance of REITs. Finally, provide recommendations for institutional investors considering an allocation to REITs in their portfolio strategies.