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. Our clients tap into a wide range of capabilities through our investment platform – either through convenient commingled portfolios or tailored investment strategies.
We believe research is key to delivering on our clients’ investment outcomes. It’s also our fundamental factor in evaluating the relative value of each investment opportunity. We base our investment decisions on a combination of bottom-up asset analysis and top-down economic and sector analyses.
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.
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:
The industrial sector continues to face dual headwinds of slower demand and strong new supply. However, net absorption has rebounded from its early-year decline, as both e-commerce retailers and 3PLs have increased leasing activity in the second half of the year. The sector remains well-capitalised, and investment activity appears to be picking up. Higher interest rates and weaker market performance have reduced under construction activity by more than 50% from its peak, which should help markets adjust in the near term.
OFFICE:
The most recent data suggest signs of life for office demand, though much remains to be done for a sustained recovery. Individual asset valuations are still in a corrective phase, which will take more time to resolve. Some opportunistic investors have begun entering the market to capitalise on pricing dislocations. While in-office attendance has improved, it remains well below pre-pandemic levels, and hiring in office-using industries—a key demand driver – has been modest in the second half of 2024.
RESIDENTIAL:
The apartment sector is beginning to see stabilisation in market fundamentals. Strong demand is starting to offset supply-side issues that have troubled several Sunbelt markets. While rental trends remain flat, there are signs that the pricing pendulum may be shifting in favour of landlords. The sector continues to be a favourite among investors, with debt capital remaining available from all sources.
RETAIL:
The retail sector has outperformed on several measures and remains among the top performers in commercial real estate. Valuations appear to have stabilised, and the lack of new supply has helped maintain healthy occupancy levels. Consumer spending at brick-and-mortar stores has grown moderately, but there are concerns that household balance sheets may lead to a reduction in discretionary spending. Slower economic growth remains a risk, but neighbourhoods and communities with value-oriented stores are expected to remain healthy.
OTHER:
Single-family rental – The single-family and build-to-rent sectors remain healthy and well-positioned. Fundamentals are strong, driven by solid demand and favourable affordability metrics compared to both the singlefamily for-purchase market and equivalent multifamily units. While rental growth has slowed compared to the previous year, this trend has been exacerbated in a few metros due to increased build-to-rent activity. Although lower interest rates could improve affordability in the for-purchase market, elevated home prices will likely limit a broader shift in the near term.
Data centres – The data centre sector remains extremely tight, with vacancy rates across major markets averaging under 2%. Rental growth in core markets is approaching 30% on a year-over-year basis, as new supply cannot keep pace with increasing demand. Debt capital remains available for existing assets, but high development costs have limited lending primarily to larger investment banks .
Student housing – The student housing sector continues to perform well, with preleasing close to 90% through mid-year. Rent growth remains stable, and overall demand supports rental increases in the mid-single digits. While demographics continue to favour healthy performance, tailwinds may fade as key cohorts decline and enrolment rates in four-year institutions have flattened in recent years.
Life sciences – The sector continues to face significant headwinds following its stellar performance during the pandemic. The lack of capital for start-ups has challenged occupancy amid a rapid pace of development in several metros. Exacerbating these issues is the lack of hiring within life science occupations, partly due to insufficient venture capital funding. Although funding has improved from its lowest point, it remains well below its highs.
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 capitalising 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.
