Principal Real Estate is a top 10 global real estate manager1 with $102bn in assets under management as of 30 September 2024. Providing access to capabilities across the spectrum of public and private equity and debt, our in-depth market knowledge, experienced teams, and extensive connections across all four quadrants of real estate, help us to maximise opportunities and find the best relative value on behalf of our clients.
Principal Real Estate built its reputation as a knowledgeable and trusted adviser to institutional investors on six decades of commercial real estate experience2. We adopt a consultative partnership approach with clients, providing choice and customisation to help meet any unique risk and return objective.
With seasoned teams of investment professionals around the globe in the United States, Europe, Singapore, and Australia delivering comprehensive research and market coverage, clients can benefit from our distinct 360° perspective of real estate space and capital markets.
We provide a range of investment capabilities from traditional core strategies to opportunistic property development and redevelopment.
- Core and core-plus
- Value-add and development
- Traditional property sectors
- Specialist property sectors
- Data centres
- Hotels
- Residential
- Healthcare
In Europe, we have long-standing relationships in most major markets and are able to access real-time market information, track deal flow, and understand regional market dynamics.
1 Managers ranked by total worldwide real estate assets (net of leverage, including contributions committed or received, but not yet invested; REOCs are included with equity; REIT securities are excluded), as of 30 June 2024. ‘The Largest Real Estate Investment Managers’, Pensions & Investments, 7 October 2024.
2 Principal Real Estate Investors became registered with the SEC in November 1999. Activities noted prior to this date were conducted beginning with the real estate investment management area of Principal Life Insurance Company and later Principal Capital Real Estate Investors, LLC, the predecessor firm to Principal Real Estate Investors.
Sector forecasts
INDUSTRIAL:
Values have turned positive as of September 2024 after seven consecutive quarters of decline. The pivot suggests the sector might have entered a recovery phase following a peak-to-trough correction of 21%. Overall, momentum is picking up among investors and occupiers. Supply remains relatively tight, though vacancy has crept up marginally. Rental growth has slowed compared to previous years, while occupiers’ demand gravitates towards modern, energy-efficient assets with high sustainability credentials.
OFFICE:
The outlook and sentiment associated with the office sector remain weak. The sector is likely to lag behind the other property types for the remainder of the year. Pockets of strength in amenity-rich sublocations are the exception. Prime yields, on aggregate, have softened for the ninth consecutive quarter, though by the lowest amount since the correction began in Q2 2022. Hybrid working remains widespread and occupier demand continues to be highly polarised. European vacancy rates up by a further 80bps in Q2 2024, to 14.7%, according to the MSCI Property Index.
RESIDENTIAL:
Values have turned positive in Q2 2024 (+1%) after seven consecutive negative quarters and a peak-to-trough decline of 14%. The Netherlands was the best-performing market, followed by the UK. The wider apartment sector – multifamily, single-family, built-to-rent, co-living, student and senior housing – overtook offices as the most invested property type in Q2 2024 owing to favourable structural trends, including acute housing affordability pressure. Falling interest rates and energy costs will provide additional support to the sector by lessening the pressure on disposable incomes.
RETAIL:
Capital flow declined by roughly 16% in Q2 2024 compared to the same period last year, down to €7.1bn, the fourth lowest level since 2010. The fall was driven by France and Germany, whose weak performances were widespread across all property types, owing to a precarious political and economic environment that is tempering their recovery. Capital values increased by 0.3% in Q2 2024 after seven consecutive declines. Retail warehouse was the best-performing retail segment (1.4% capital growth).
OTHER:
Data centres remains the sector with the brightest performance and outlook owing to structural supply-demand imbalance. Limited availability of land and power hinders the delivery of new capacity, while the migration to cloud computing and AI keep fuelling demand. Thus, pressure on rents intensified, leading to double-digit growth in several geographies. In the core markets (FLAPD), take up for colocation space exceeded new supply. Vacancy rates declined below 10% for the first time since records began.
The healthcare sector continues to grapple with ongoing challenges, including a shortage of workers, a lack of funding, and financial pressure. Transaction volume declined by approximately 30% over the prior year, and way below the five-year average. Capital growth has turned positive after eight consecutive quarterly declines. Yields softened by a couple of basis points to 5.52%, while rents improved by 0.9%.
In our view, the UK student housing market commands some caution in the short term until the impact of the new student visa rule is fully understood. Since it came into effect in January, study visa applications have declined by 17% compared to the same period last year. If this trend persists, it has the potential to undermine the financial sustainability of less prestigious universities.
Investment principles & strategy
We offer clients a wide range of capabilities through our investment platform, and strive to deliver consistent, risk-appropriate performance and strong relative value.
Our investment strategy and research process sit at the heart of our ability to assess relative value globally, both within and across quadrants, and to deliver on investment solutions. Our investment teams rely on our analyses and insights to inform their investment decisions.
A relative value approach to investing
Our team-based, time-tested process includes rigorous, in-depth research and focuses on maximising investment returns that match our clients’ risk tolerances and preferences. We base our investment decisions on a combination of bottom-up asset analysis and top-down economic and sector views. In a constantly evolving marketplace, innovation is critical, whether it be sustainable investing or ‘next-generation’ investment strategies.
Comprehensive market coverage, holistic understanding
Our experience in all four quadrants of the commercial real estate market – public equity, private equity, public debt, and private debt – gives us a holistic understanding of the market. We draw not only from the focused experience of each quadrant team, but also the insights gained from cross-team collaboration.
This helps us make a comprehensive risk-adjusted return assessment, across all quadrants, and enables a tailored approach to investing client capital based on their specific risk/return objectives.
Strategic corporate development
Principal Real Estate will continue capitalizing on the experience of our global team with an emphasis on providing strong investment performance and service to existing and new clients.
We anticipate growth of real estate debt and equity assets under management, subject to investor demand as well as the availability and pricing of attractive real estate investments. We remain committed to our core values, being highly client-centric and investment solution oriented, maintaining a fiduciary mindset, and adhering to a disciplined approach to real estate investing.
Performance verification
Principal Real Estate Investors, LLC claims compliance with the Global Investment Performance Standards (GIPS®).
COMPLIANCE STATEMENT
© 2024 Principal®, Principal Financial Group®, Principal Asset Management, and Principal and the logomark design are registered trademarks and service marks of Principal Financial Services, Inc., a Principal Financial Group company, in various countries around the world and may be used only with the permission of Principal Financial Services, Inc. Principal Asset ManagementSM is a trade name of Principal Global Investors, LLC. Principal Real Estate is a trade name of Principal Real Estate Investors, LLC, an affiliate of Principal Global Investors.
