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REITs are signaling CRE is entering expansion, Principal Asset says
Principal Asset Management estimates it oversees $107 billion in real estate investments, split across REITs, private CRE debt, CMBS, and private equity separate accounts and funds.
Rich Hill, senior managing director and global head of real estate strategy and research at Principal Asset Management, said listed REITs are acting as leading indicators for commercial real estate cycle turns, flagging the shift from recovery to expansion.
Hill told Commercial Observer that listed REITs troughed in October 2023 and were up 60.0% since then on a full-return basis. He said private real estate troughs typically follow 12 to 18 months later, while private valuations have been rising for eight consecutive quarters on a total-return basis.
He added that when REIT valuations move above prior cycle highs, it signals an expansion phase and that CRE cycles can last about 16 to 18 years, with recoveries around two years, expansions around 12 years, and downturns around 1.5 years.
Principal Asset Management, which Hill described as overseeing $107 billion of global real estate investments across public and private strategies, breaks that exposure into $20 billion in public REITs, $20 billion in private CRE debt, and $55 billion in private equity investments, with the remainder in commercial mortgage-backed securities.