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?
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:
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.
Source: NCREIF Fund Index - Open End Diversified Core Equity (NFI-ODCE) as of 9/30/2024.
Source: FTSE Nareit Equity REIT price index as of 9/30/2024.
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Important information
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All investing involves risk, including the risk of loss.
Past performance does not guarantee future results.
Investments cannot be made directly in an index.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
The opinions expressed are those of the author as of Dec. 10, 2024. They’re based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
Generally, real estate assets are illiquid in nature. Although certain kinds of investments are expected to generate current income, the return of capital and the realization of gains, if any, from an investment will often occur upon the partial or complete disposition of such investment.
Investing in real estate typically involves a moderate to high degree of risk. The possibility of partial or total loss of capital will exist.
Investing in commercial real estate assets involves certain risks, including but not limited to tenants' inability to pay rent; increases in interest rates and lack of availability of financing; tenant turnover and vacancies; and changes in supply of or demand for similar property types in a given market.
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