Why REIT prices are suggesting a private market real estate recovery

Private US real estate valuations declined after peaking about two years ago, begging the question, “When will we know values have hit bottom?” Or, to put the question more optimistically, “When can we expect private real estate values to begin to recover?”

One perspective is to compare shifts between private market valuations and public market prices. Private market valuations use a quarterly appraisal-based approach. On the other hand, public market prices are based on real estate investment trusts (REITs), which are continually traded on stock exchanges, meaning prices can change faster and with greater volatility. That’s why the public REIT market can serve as a leading indicator for the private property market, especially during market peaks and troughs.

So, how do post-peak shifts in private market valuations compare to public market prices through the most recent valuation period?

• Private market: -25% value change from peak (third quarter of 2022) through the third quarter of 2024.¹
• Public market: -12% value change from peak (fourth quarter of 2021) through the third quarter of 2024.²

So, the peak-to-current decline in private market values is two times greater than in public market prices.

A year ago, things were very different ­— the situation was reversed. Public market prices fell faster and harder than private market values:

• Private market: -15.4% value change from peak (third quarter of 2022) through third quarter of 2023.¹
• Public market: -31.3% price change from peak (fourth quarter of 2021) through third quarter of 2023.²

Our conclusion: Poised for recovery
In summary, private market values have continued to fall while public market prices have started to recover. Therefore, based on the premise that the public REIT market can serve as a leading indicator for the private property market, we believe that private US real estate values are poised for recovery.