REITs are good vehicles to gain exposure to the real-estate industry without the capital commitment or risks of owning physical real estate. But it's easy for investors to become paralyzed given the plethora of options available.

An investor can choose to pick real-estate investment trusts that focus on residential properties, commercial properties, data centers or infrastructure. There are even exotic offerings like timber and salt caves.

To help investors home in on the best-performing parts of the market historically, my research assistants (Zainab Ashfaq and Ethan Smith) and I pulled data on all REIT mutual funds and exchange-traded funds going back to the mid-1980s, the oldest figures on returns provided by Morningstar Direct. We then separated REITs by region -- the U.S., Europe, Asia or general global -- and by specialization in the U.S. -- residential, commercial, data center or infrastructure. In all, we find that U.S.-focused REITs have done best, led by data-center REITs.

With our categorizations, we calculated the annualized 10-year return and volatility for each grouping. Since most specialization of REITs has occurred in the past 15 years, we focused on returns since 2016 for these calculations, but the results still show the U.S. has been the best-performing region if we use the full time period of data.

First, when we looked regionally, we found that U.S.-focused REITs are tops and those focused on Europe were worst.

For instance, when we look at the return over a 10-year period for U.S.-focused REITs, it comes to 7.08% a year, with average volatility of 18.25%. Asia-focused REITs had an average return of 2.33% a year, with volatility of 15.10%. And Europe-focused REITs averaged returns of just 1.23% a year, with volatility of 23.56%.

Turning to REIT specialization in the U.S., we see that REITs focused on data centers have done best (with slightly elevated risk levels), while residential REITs have lagged behind.

Data center-focused REITs have averaged an annualized 13.75% rate of return over the past decade with average annual volatility of 21.36% over the same time period. While the artificial-intelligence boom has aided the returns of data center-focused REITs, such REITs were outperforming their counterparts even before 2023. Next best were REITs focused on commercial real estate, which averaged returns of 10.18% a year with volatility of 19.30%.

Turning to the laggards of the group, we have infrastructure and residential. Infrastructure-related REITs -- which include cellphone towers and pipelines -- yielded an average return of 9.51% a year with volatility of 18.20%. And residential-related REITs delivered returns of just 7.05% a year over the past 10 years with volatility of 19.47%.

Ultimately, U.S.-focused REITs (particularly in the rapidly expanding data-center sector) have been the best place to invest and European REITs have been the place to avoid given their high risk and meager returns.

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