Real estate

Can commercial real estate beat the current high inflation environment?

Special report

July 5, 2022 | 15 min read

Indraneel Karlekar, Ph.D.

Senior Managing Director, Global Head of Research & Portfolio Strategies

Key Insights

Inflation in the U.S. has risen to levels last seen in the early 1980s raising fears of being entrenched in the post-pandemic economy.

Elevated inflationary pressures are pushing the Federal Reserve (Fed) to aggressively lift short-term interest rates potentially into a slowing growth environment—conjuring fears of stagflation.

Although commercial real estate is not inflation proof, it has a compelling record of performing well during periods of higher-than-average inflation, owing to its ability to generate and increase income returns for investors given the nature of leases that are often tied to measures of inflation.

Investors need to be mindful that not all property sectors, or locations, will offer the same performance or the same hedge against inflation benefits; we recommend focusing on a mix of emerging growth and traditional property types in metro areas aligned with long-term structural drivers that include technology and strong demographic growth profiles.

Inflation is running hot

In 2020, Principal Real Estate produced a paper warning that record fiscal stimulus totaling roughly $6 trillion in direct payments to households and businesses; the Fed’s ultra-accommodative monetary policy; and pandemic-related supply chain disruptions could lead to heightened inflation. These three key factors created a surge in consumer activity that helped power one of the fastest economic recoveries on record. In the process, strong household spending and goods shortages generated significant demand side inflationary pressures spilling over into residential real estate.

To put the present situation in perspective, there have been five distinct periods of varying levels of inflation in U.S. economic history since World War II: the post-war era; the Great inflation; the Great moderation, post-Global Financial Crisis (GFC), and post-COVID. These periods are highlighted in Exhibit 1 along with the key factors affecting pricing during each inflationary regime. As discussed in our earlier paper, the Great inflation period, which corresponded to increases in fiscal spending, shifting global monetary policy (i.e., the end of the Bretton Woods system), more highly regulated markets, and disruptions in global trade, remains the only significant period of excess inflation in modern economic history.

EXHIBIT 1: Inflation drivers vary widely by inflationary regime

Table that assigns moderating, neutral, or inflationary impact from 1945-2022

Principal Real Estate, June 2022.

Perhaps most importantly, the 1970s corresponded to a period of low economic growth commonly referred to as stagflation. In the post-COVID period, many of the same—if not more—inflation factors are flashing red, though some are arguably temporary in nature, resulting directly from pandemic-related disruptions. Global trade, for example, continues to be disrupted by China’s zero COVID policies despite much of the world returning to normal day-to-day activities. This has created supply-chain disruptions in ports and shortages of physical goods in the U.S. at a time when employment and wage growth have accelerated, supporting robust consumer demand.

Add to that increased geopolitical uncertainty and disruptions to commodity markets caused by the conflict in Ukraine, which have led to a significant increase in oil prices. Massive fiscal support during the pandemic is still making its way through the economy and has been supportive of household spending. A sharp drop in immigration has placed additional pressure on wages at a time when the U.S. demographic picture is one of aging with baby boomers retiring at an accelerating pace. And until very recently, monetary policy was unprecedented in its looseness allowing ample credit to households and corporates alike. No surprise, inflation spiked and is hovering near its highest level since the early 1980s (Exhibit 2).

As a result, the Fed has been forced to abandon its plans to slowly normalize interest rates later when the economy would have arguably reached a self-sustaining expansion. Instead, it has embarked on a more aggressive tightening cycle primarily aimed at curbing inflationary trends, which have proved stickier than initially thought. To accomplish this task the Fed has increased rates three times in 2022 and is targeting a policy rate that could be near 4% by the end of 2023. It has also started to wind down its bloated balance sheet adding further tightening.

EXHIBIT 2: Inflation is running near its 40-year high
CPI for all urban consumers, YOY % chg

Line chart depicting CPI inflation and Core CPI inflation from 1948-2022

U.S. Bureau of Labor Statistics, Moody’s Analytics, Principal Real Estate, May 2022.

Complicating the Fed’s policy decision is that it now appears to be tightening into a weaker economy, which is somewhat at odds with its dual mandate of stable prices and full employment. In a sense, it may indeed face a Hobson’s choice where it must raise rates aggressively to combat further price increases, while potentially slowing growth or even causing a mild recession, or otherwise risk allowing inflation to run hot and trigger a more severe and damaging stagflation scenario in which price increases persist and employment and economic activity decline (see box on stagflation on page 4). The latter would certainly have a more severe and long-lasting impact on both growth and commercial real estate performance due to the impact on market fundamentals.

At present, the Fed’s policy shift and communications have added volatility to public markets but are yet to have a discernable impact on private equity real estate. While REITs have turned negative on a rolling 12-month basis, the NCREIF National Property index (NPI) for all properties has continued to show robust performance clocking in at 21.9% over the last four quarters as both income and capital appreciation have performed well. Such positive performance is a testament to healthy economic growth over the same period, which has allowed market fundamentals to remain healthy across most property types, as well as record low interest rates and the widespread availability of debt capital that has led to a significant compression in capitalization rates.

Stagflation―evidence from the 1970s suggests challenges for traditional asset classes

A combination of high inflation and slowing growth is causing some investors to revisit the dreaded scenario of stagflation that developed markets last witnessed in the 1970s. A series of occurrences in recent months has brought up parallels with several stagflation catalysts―conflict, surging commodity prices (especially energy prices), lingering effects of a massive fiscal impulse, and supply chain chokeholds that are imperiling the essence of the globalized economy. Stagflation, however, is generally thought to occur during periods of high price inflation and high unemployment. As Exhibit 3 shows, the labor market is markedly tighter than it was during the 1970s, and with a vigilant central bank that is extremely focused on not letting high inflation expectations get entrenched, stagflation is not our base case as yet.

EXHIBIT 3: We are not in a 1970s stagflation scenario...
Inflation and unemployment, %

Line chart comparing CPI inflation and unemployment rate from 1970-2022

U.S. Bureau of Labor Statistics, Moody’s Analytics, Principal Real Estate, June 2022.

Given the interest around the issue, we thought it pertinent to examine the relative performance of different asset classes during the stagflationary period of the 1970s. Traditional asset classes such as equities and fixed income fared very poorly, while commodities―energy in particular―and real estate were better inflation hedges (Exhibit 4).

EXHIBIT 4: Performance of select asset classes, 1970–1980

Table reflecting asset class performance from 1970-1980

Bloomberg, NAREIT, National Association of Realtors, Moody’s Analytics (Existing Single-Family Home Price), Principal Real Estate, June 2022. Indices used: U.S. REITs: FTSE NAREIT U.S. Real Estate Index All REITs; U.S. stocks: S&P 500 Composite Price Index; Commodities: Bloomberg Commodities Index; U.S. bonds: Bloomberg Barclays Aggregate Bond Index. Index performance information reflects no deduction for fees, expenses, or taxes. Indices are unmanaged and individuals cannot invest directly in an index.

U.S. commercial real estate has a respectable track record of beating inflation

Commercial real estate has long been thought of as an inflation hedge among risk assets. While no risk asset can promise that it is truly inflation-proof, the income producing component of commercial real estate has allowed it to outperform inflation even dating back to the late 1970s.

Since 1978―the first year for which NPI data are available―private equity real estate has offered a total return of 9.2% on an annual basis with a 7% income return (see Exhibit 5). Such steady and healthy income returns are partially the result of a landlord’s ability to frequently reset rents on short-term leases, like apartments and underwrite periods of unanticipated inflation by including escalator clauses in longer-term leases, like the industrial sector. Add appreciation of 2.2% and since inception commercial real estate has outperformed inflation (which has averaged 3.5% over the same measurement period) by a total of 570 basis points on an average annual basis.

EXHIBIT 5: NCREIF Property Index since inception returns have outpaced inflation
NCREIF property type returns relative to inflation annualized since inception (Q1 1978)

Bar chart that compares income, appreciation, and inflation for property types apartment, industrial, office, and retail

NCREIF NPI, U.S. Bureau of Labor Statistics, Principal Real Estate, March 2022. Index performance information reflects no deduction for fees, expenses, or taxes. Indices are unmanaged and individuals cannot invest directly in an index.

Another way to think about commercial real estate’s performance relative to inflation is to plot out annual returns relative to inflation historically on a period-by-period basis. Exhibit 6 shows total returns divided into periods where commercial real estate outperformed inflation compared with periods where inflation outperformed. Since 1978, there were two primary periods where NPI returns fared worse than consumer inflation, the first being the period prior to and following the Savings & Loans Crisis (between Q4 1990 and Q1 1994). While inflation was running above its long-term average, the primary culprit was overbuilding during much of the 1980s and the recession following the banking crisis. Between Q4 1990 and Q1 1994 commercial real estate capital values declined by 27.2% and the overall average total return for the NPI was -2.3% on an average annual basis.

EXHIBIT 6: Commercial real estate has historically outperformed inflation
Distribution of annual total returns relative to inflation. All property types, since 1978.

Bar chart comparing NPI year-over-year total return (%) with number of quarters

NCREIF NPI, U.S. Bureau of Labor Statistics, Principal Real Estate, Q1 2022. Index performance information reflects no deduction for fees, expenses, or taxes. Indices are unmanaged and individuals cannot invest directly in an index.

The second period was the GFC when property returns underperformed inflation from Q4 2008 to Q2 2010. This coincided with a cumulative capital value decline of 30%. The point being that in both cases, underperformance was the direct result of severe balance sheet recessions rather than inflation itself. In total, commercial real estate has been able to outperform inflation 87.7% of the time, which includes periods of high inflation during the late 1970s and early 1980s. This suggests that history is on the side of the asset class in helping provide inflation hedging benefits to a balanced portfolio.

Is this time any different?

The case for U.S. commercial real estate as an inflation resilient asset class is certainly clear based on analysis of historical data. That said, it does not mean that it is inflation-proof and different cycles bring with them unique sets of circumstances. Today we are dealing with a very different set of circumstances than during the prior high inflation environment. For starters, commercial real estate is a far better established asset class than it was in the 1970s and does not necessarily benefit from the same tax-friendly policies that allowed it to deliver robust returns during the early days of the NPI. Moreover, both public and private markets have better developed indices that are more reflective of the real estate universe today than they were 40 years ago. In addition, the asset class has grown enormously in value and in the variety of property sectors now available to investors.

It is also the case that the way we view and use commercial real estate has shifted since the late 1970s. While commercial real estate demand has traditionally been predicted by changes in employment, consumer spending patterns, and global trade, the way we live, work, and play is very different today. Though COVID-19 was responsible for some of the speed at which these changes occurred, most of these trends were in place long before the pandemic began.

The office market is a good example of this, where the sector accounted for roughly 40% of the NPI just before the dot.com bust in 2001, demand for office space has slowed dramatically over the past two decades. The office sector now accounts for just 28% of the index, reflecting a shift in tenant usage and investor preference. Today— more than two years after the onset of the pandemic—office utilization is just under 45% of its pre-COVID level, according to data from Kastle Systems. Alternatively, the rise of e-commerce and shifting housing demand have resulted in respectable performance for residential and warehouse properties ranging from market fundamentals to investment returns.

Exhibit 7 displays total returns by property type and metro area over the past two years relative to inflation. While it is clear that industrial properties have outperformed inflation on both a one- and two-year trailing basis, office and retail properties have displayed more mixed results due to secular headwinds. The residential sector has also performed well due to shifting demand for housing and an increase in Central Business District (CBD) to suburban migration during the lockdowns as workers sought more space for both work and family life.

EXHIBIT 7: Recent performance relative to inflation is determined by demand*
Total returns by metro area and property type
2-year vs. 1-year annualized return (%)

Bubble chart conveying total returns (%) by property type including apartment, industrial, office, and retail

*Size of bubble reflects market value. Dashed lines indicate annual CPI inflation. NCREIF NPI, U.S. Bureau of Labor Statistics, Principal Real Estate, Q1 2022.

When we look at property sector performance over the past 40 years, strong underlying demand drivers, market fundamentals, and asset selection are far more important than interest rates and inflation. Investors need to carefully evaluate the potential for sustained demand on both a cyclical and structural basis when considering portfolio construction. As Exhibit 7 illustrates, both apartment and industrial assets have performed particularly well, despite a high inflation environment, while headwinds for office and retail remain challenging to landlords and, in turn, investors.

Inflation and property outlook

We are currently in the most elevated inflationary environment since the early 1980s. While both inflation and central bank policy shifts have vexed capital markets and impacted returns for traditional assets, the same cannot be said for private equity real estate yet. Performance-to-date has outstripped high inflation, thanks largely to the healthy performance of structurally-driven residential and industrial property types. While income growth has been solid, the past 24 months have been marked by a notable increase in capital values.

As inflation and interest rates are concerned, there is some hope we are at least approaching a peak, but we are not there yet. Though economic growth appears to be slowing, the most recent CPI print for May of 8.5% was disquieting to say the least. As a result, the Fed will keep up the pressure, in particular on price increases, by pushing its target rate to between 3.5%-4.0% by the end of 2023, which should help wring out some pricing pressures, albeit at the cost of slower economic growth. Consensus estimates have inflation falling to 5.5% by the end of 2022 and 2.9% by 2023, which should relieve some strain even though with moderately higher interest rates and within a slower growth environment.¹

But to hedge against the cyclical challenges that will invariably accompany slower growth and labor markets, we suggest portfolio construction should revolve around Principal Real Estate’s “DIGITAL”² themes and markets, which take advantage of strong underlying migration trends and shifting demand for commercial real estate that focuses on emerging consumer trends, the increasing use of technology by consumers and businesses, and the re-orientation of global trading links. While we feel that today’s high inflationary environment will ebb, investors who are on the forefront of embracing existing and emerging secular trends could be able to build resilience into their portfolios.

How can commercial real estate investors mitigate inflation in their portfolios?

Though there is little any asset manager can do to entirely avoid inflation, by pivoting toward the stability of real assets, including commercial real estate, investors can potentially preserve real investment performance. The U.S. is arguably in a better situation globally—particularly compared to those in Europe who are heavily dependent on Russia for its energy needs—to wring out inflation over the next 12 to 18 months. That said, we believe both near- and longer-term performance may be enhanced by investing in property sectors that exhibit both high correlation to inflation as well as strong structural demand drivers.

We believe it is important for investors to focus on property types that are best positioned to exhibit strong structurally-driven demand and real rent growth—particularly in an above average inflationary environment. As shown in Exhibit 8, apartments and industrial have been most effective at mitigating inflation given the structurally resilient demand, which is amplified by lease structures that can help landlords.

EXHIBIT 8: U.S. property type annualized total returns versus inflation
1978 - 2022

Bar chart that compares total returns (%) for property types apartment, industrial, retail, office, and CPI over 3-, 5-, 10-year, and since inception

NCREIF, Moody’s Analytics, Principal Real Estate, June 2022. Inception = Q1 1978.

Cyclically sensitive property sectors are likely to come under pressure in a slower growth and high inflation scenario. As a counterbalance, we recommend adding property sectors that have structurally resilient growth and leases that reset more often, which allows owners to readjust pricing. Appropriately diversified portfolios with a mix of short-term and mid-to longer-term leases—particularly those with CPI escalators—stand a better chance of keeping pace with and even exceeding inflation. Exhibit 9 contains a snapshot of the sectors investors could consider in building a portfolio.

EXHIBIT 9: Inflation and real estate: Some considerations for investors

Table that conveys strong, neutral, and weak demand profiles for property types

Principal Real Estate, June 2022.

Conclusion

U.S. commercial real estate can potentially provide investors different options to mitigate against the elevated levels of inflation that are likely to persist over the short-term. While no property type offers a perfect hedge, we believe resiliency in demand and the structure of leases can go a long way in creating the type of portfolio that may provide shelter against high inflation. From a relative perspective, data from the 1970s―which was one of high inflation and slow growth―does suggest that real estate fares better than traditional assets in preserving real returns. In a relative value world, that may be a good place to be in for real estate as well as for balanced investors looking for options to mitigate against elevated inflation.

¹ Wall Street Journal Economic Survey, April 2022, www.wsj.com/articles/recession-risk-is-rising-economists-say-11649592002

² DIGITAL: Demographics, Infrastructure, Globalization, Innovation & Technology

Disclosure

For Public Distribution in the United States. For Institutional, Professional, Qualified, and/or Wholesale Investor Use Only in other Permitted Jurisdictions as defined by local laws and regulations.

These are the current views and opinions of Principal Real Estate and are not intended to be, nor should they be relied upon in any way as a forecast or guarantee of future events regarding particular investments or the markets in general.

Risk considerations

Past performance does not guarantee future results. Investing involves risk, including possible loss of principal. Potential investors should be aware of the risks inherent to owning and investing in real estate, including: value fluctuations, capital market pricing volatility, liquidity risks, leverage, credit risk, occupancy risk and legal risk. All these risks can lead to a decline in the value of the real estate, a decline in the income produced by the real estate and declines in the value or total loss in value of securities derived from investments in real estate. Inflation and other economic cycles and conditions are difficult to predict and there Is no guarantee that any inflation mitigation/protection strategy will be successful.

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This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

Exhibit 4 indices used: U.S. REITs - FTSE NAREIT U.S. Real Estate Index All REITs - is a free-float adjusted, market capitalization-weighted index of U.S. equity REITs; U.S. Stocks - S&P 500 Composite Price Index (U.S. stocks) – 500 widely held common stocks that measures the general performance of the market; Commodities - Bloomberg Commodities Index - is a broadly diversified commodity price index; U.S. Bonds - Bloomberg Barclays Aggregate Bond Index - is a broad based, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States. Exhibits 5, 6, 7, 8 index used: NCREIF National Property Index - is used to analyze the performance of commercial real estate and used as a benchmark for actively managed real estate portfolios.

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The website may contain information on funds that are registered as restricted schemes under the Sixth Schedule to the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations in Singapore. The offer, holding and subsequent transfer of shares are subject to restrictions and conditions stipulated under the Act and the units in those funds are not allowed to be offered to the retail public. The shares of these funds are being offered only on the basis of the information contained in the relevant Information Memorandum. The Information Memorandum is not a prospectus as defined in the Act and accordingly, statutory liability under the Act in relation to the content of prospectuses does not apply. The Monetary Authority of Singapore has not, in any way, considered the investment merits of the funds and assumes no responsibility for the contents of the website and/or that of the Information Memorandum.

It is your responsibility to be aware of and to observe all applicable laws and regulations of any relevant jurisdiction. If you are not an “institutional investor” in Singapore or a “Professional Investor” in Hong Kong you may not access this website and you should select the “I Do Not Accept” button below.

By selecting the “Accept” button below, and entering this website, you are representing and warranting that the applicable laws and regulations of your jurisdiction allow you to access the website and that you have agreed to these terms and confirm and represent that you are an “institutional investor” in Singapore or a “Professional Investor” in Hong Kong."

Principal Global Investors (Australia) Ltd. (ABN 45 102 488 068, AFS Licence No. 225385) ("we", "us", "our") is regulated by the Australian Securities and Investments Commission.

The information in this website, and on pages linked by this website, is general information only and is not intended to constitute financial product advice or a recommendation to buy, sell or hold any particular security or investment. It does not take into account any investor's investment objectives, particular needs or financial situation. Any investor should consider whether an investment fits their investment objectives, particular needs and financial situation before making any investment decision.

While the information on this website is updated from time to time, it is subject to change in the intervening period. None of Principal Global Investors (Australia) Limited or its related entities (together "Principal") guarantee the accuracy, completeness or timeliness of the information on this website. Information may become outdated and opinions may change, including as a result of new information becoming available or changes in the markets. To the extent permitted by law, Principal does not accept any responsibility arising in any way (including by reason of negligence) for errors in, or omissions from, this information.

We offer financial products only to wholesale investors (as defined in sections 761G and 761GA of the Corporations Act) and to persons investing through an investor directed portfolio service under the product disclosure statements that can be accessed from this website.

The information contained in this website is intended only for Australian residents and investors and is not intended for use in any country or jurisdiction where such use would constitute a violation of law. There is no intention to offer or sell products in countries or jurisdictions where such offer or sale would be unlawful under the relevant domestic law.

Protecting Your Privacy

At Principal Global Investors (Australia) Ltd, we give priority to protecting the privacy of your personal information. We do this by handling personal information in a responsible manner and in accordance with the Privacy Act 1988 (Cth).

If it is reasonable and practicable to do so, we collect personal information directly from you. How we collect your information will depend upon how you interact with us. We may collect it through application forms, telephone, email and internet contact, from correspondence with you or your consultant and in person.

The information collected may include what time you visited our website, how long you were on our site, if you've been to the site before, what web pages you visited, and what type of browser you used to access our website. This information is collected through the use of cookies.

Use of cookies on this site is outlined in the Principal Online Privacy Policies, Information Collected by Use of Cookies and Spotlight Tags. In accepting these terms and conditions, you accept the terms of the use of cookies from this site. You can configure your browser to accept all cookies, reject all cookies, or notify you when a cookie is sent. Refer to your browser instructions or help screens to learn about these functions. If you reject all cookies, you may not be able to use our web sites.

We may collect, hold and use personal information in order to process applications, administer the investments and provide related services. If you do not provide your personal information to us, we may not be able to process and administer your investment. We may also use your personal information to tell you about other products and services offered by us or other members of the Principal Financial Group. Please contact us if you do not wish to receive this ongoing information.

We may disclose your personal information to other related companies within the Principal Financial Group®, agents and other external service providers (who supply administrative, financial or other services), some of which are located overseas. Where this occurs, we take steps to protect personal information against misuse or loss however you should be aware that in the event the overseas recipient fails to handle the personal information consistently with the Australian Privacy Principles, we will not be accountable under the Privacy Act and you will not be able to seek redress under the Act. The countries this information may be disclosed to will vary from time to time, but may include Brazil, Chile, China, Hong Kong, India, Japan, Malaysia, Singapore, the United Kingdom and the United States and other countries where the Principal Financial Group® has a presence. A list of locations in which the Principal Financial Group® operates can be found at https://www.principal.com/about-us/our-company/company-overview/worldwide-locations. Our Privacy Policy contains information about how you can gain access to the personal information that we hold about you and seek correction of that information, subject to certain exemptions under law. Our Privacy Policy also contains information about how you may raise concerns regarding privacy with us and how we will deal with your concerns.

You can obtain a copy of our Privacy Policy by clicking on the link below:

Privacy at Principal Global Investors (Australia) Limited

By clicking "Accept", you consent to us dealing with your personal information in the manner set out in our Privacy Policy. You also acknowledge and understand that by providing such consent that we will not be required to take such steps as are reasonable in the circumstances to ensure overseas recipients of your personal information comply with the Australian Privacy Principles.

"Principal Financial Group is a global organization that operates in many different jurisdictions worldwide. Principal Financial Group’s diversified group of companies and affiliates provide comprehensive asset management solutions for institutional investors, investment funds and individuals in key markets around the world. Principal Financial Group has investment offices in the United States, [Mexico, South America, Europe, the Middle East, and throughout Asia]. Where appropriate, Principal Financial Group entities are registered with appropriate regulatory authorities in the jurisdictions in which they are required to be registered to carry on their respective business activities.

All products or services provided to you by any Principal Financial Group company shall only be available in the jurisdiction(s) within which the company providing the product or service is authorized to operate. The relevant Principal Financial Group company reserves the right to make the final determination on whether or not you are eligible for any particular product or service. If you choose to enter a website outside your country of residence, you are advised that it may not be legal in that jurisdiction for you to access or use the facilities available on that Site and the legal requirements of that jurisdiction may prohibit you from dealing or otherwise transacting in that jurisdiction.

Principal Financial Group makes no representation that the content of the site is appropriate for use in all locations, or that the transactions, securities, products, instruments or services discussed at this site are available or appropriate for sale or use in all jurisdictions or countries, or by all persons and entities. Nothing on this website shall be considered a solicitation for the offering of any investment product or service to any person in any jurisdiction where such solicitation or offering may not lawfully be made.

You may view, download for caching purposes only, and print content from the website for your own personal use, subject to the restrictions set out below and elsewhere in these Terms of Use.

No Guarantee of Timeliness
This website may contain videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions. The information and materials contained on this website, and the terms, conditions, and descriptions that appear, are subject to change. All content on this website is presented only as of the date published or indicated, and may be superseded by subsequent market events or for other reasons. In addition, you are responsible for setting the cache settings on your browser to ensure you are receiving the most recent data.

No Warranties
The information on this website has been developed internally and/or obtained from sources believed to be reliable; however Principal Global Investors and its affiliates do not independently verify or guarantee its accuracy or validity. The information and services provided on this website are provided ""AS IS"" and without warranties of any kind, either expressed or implied. To the fullest extent permissible pursuant to applicable law, Principal Global Investors disclaims all warranties, including, but not limited to, any warranty of non-infringement of third-party rights and any implied warranties of merchantability and fitness for a particular purpose. Principal Global Investors does not warrant, either expressly or impliedly, the accuracy or completeness of the information, text, graphics, links or other items contained on this website and does not warrant that the functions contained in this website will be uninterrupted or error-free, that defects will be corrected, or that the website will be free of viruses or other harmful components. Principal Global Investors expressly disclaims all liability for errors and omissions in the materials on this website and for the use or interpretation by others of information contained on the website. Subject to any contrary provisions of applicable law, no company in the Principal Financial Group nor any of their employees or directors gives any warranty of reliability or accuracy nor accepts any responsibility arising in any other way (including by reason of negligence) for errors or omissions on this website.

If you have questions, please email us.

Click ""Accept"" to indicate your acknowledgement and acceptance of Principal Global Investors Terms of Use and to continue."

"These Terms & Conditions explain certain legal and regulatory conditions and restrictions in relation to the Principal Global Investors (Europe) Limited website, and in relation to the Principal Global Investors Funds (‘the Funds’). This information may be changed by Principal Global Investors at any time without notice.

In these terms and conditions, references to 'Principal Global Investors' means Principal Global Investors (Europe) Limited or any affiliate of the Principal Financial Group, Inc. or Principal Global Investors, LLC.

Before you proceed, you must acknowledge that you have read, and agree to, our terms and conditions.

Information in relation to the Principal Global Investors Funds is available through this web site to institutional investors resident in the following countries of: Belgium, France, Finland, Germany, Guernsey, Ireland, Italy, Jersey, Netherlands, Spain, Sweden, Switzerland and the United Kingdom. By proceeding this far you are representing and warranting that you are an institutional investor resident in one of these countries. Not all of the Funds are available in all these jurisdictions, and investors are directed to the Country Registration document for detailed information . What follows is not an offer or invitation to acquire an investment to, and should therefore not be relied upon by, any person anywhere other than the countries noted. Persons in respect of whom such prohibitions apply must not access this web site. This web site is reserved exclusively for non-U.S. persons and should not be accessed by any person in the United States.

Yes, I certify to be an institutional investor and resident of a country listed above.

Cookies
Use of cookies on this site is outlined in the Privacy and Security Policy. In accepting these terms and conditions, you accept the terms of the Cookie Policy and the use of cookies from this site.

Legal Entity Disclosure and Regulation
In Europe by Principal Global Investors (EU) Limited, Sobo Works, Windmill Lane, Dublin D02 K156, Ireland. Principal Global Investors (EU) Limited is regulated by the Central Bank of Ireland.

In the United Kingdom by Principal Global Investors (Europe) Limited, Level 1, 1 Wood Street, London, EC2V 7 JB, registered in England, No. 03819986, which is authorised and regulated by the Financial Conduct Authority (“FCA”).

In Switzerland by Principal Global Investors (Switzerland) GmbH. This website is considered as advertising and information contained herewith be treated as such. Investors can obtain free of charge the prospectus, trust deed, the prospectus, the key investor information document (KIID), and the annual and semi-annual reports from the representative in Switzerland.

In Europe and United Kingdom, this website is directed exclusively at Professional Clients and Eligible Counterparties and should not be relied upon by Retail Clients (all as defined by the MiFID and FCA respectively). If you are viewing the material as a retail investor, you should seek independent investment advice before deciding whether the products and services in question are suitable to meet your investment needs and objectives, as the language has not been complied to a retail client standard.

Principal Global Investors Funds
Principal Global Investors (Ireland) Limited is the issuer of the Funds. Investments may only be made on an application form attached to a current prospectus and following receipt by the investor of the KIID in respect of the Fund in which they intend to invest. The latest version of the prospectus of the Funds is dated 14 December 2012.

For Real estate investors in the European Economic Area (“EEA”), this website and the information on it is only directed at persons who are professional investors for the purposes of the Alternative Investment Fund Managers Directive (2011/61/EU) (“AIFMD”), professional clients or eligible counterparties for the purposes of the Markets in Financial Instruments Directive (Directive 2014/65/EU) (“MiFID II”) or as otherwise defined under applicable local law and regulation and at whom this website and the information on it may lawfully be directed in any relevant jurisdiction (“Eligible Persons”). In relation to each member state of the EEA (“Member State”) which has implemented AIFMD (and for which transitional arrangements are not/ no longer available), this website may only be accessed and interests in Funds may only be offered or placed in a Member State to the extent that: (i) the relevant Fund is permitted to be marketed to professional investors in the relevant Member State in accordance with AIFMD (as implemented into the local law/regulation of the relevant Member State); or (ii) this website and its information may otherwise be lawfully distributed and the interests in Funds may otherwise be lawfully offered or placed in that Member State (including at the initiative of the investor). In relation to each Member State of the EEA which, at the date of accessing this website, has not implemented AIFMD, this information may only be distributed and interests in Funds may only be offered or placed to the extent that this information may be lawfully distributed and the interests in Funds may lawfully be offered or placed in that Member State (including at the initiative of the investor).

Persons who are not Eligible Persons, including but not limited to those individuals or other persons who fall within the FCA’s definition of ‘retail clients’, should not use or rely upon this website or the information contained therein and may not engage the services of Principal Real Estate or any of its affiliates, or invest in any Fund. Potential investors are advised that all or most of the protections provided by the UK regulatory system will not apply and that the UK Financial Services Compensation Scheme may not be available in relation to an investment in a Fund or separate account.

The contents of this website have not been verified or approved by any competent regulatory or supervisory authority. No liability, whether in negligence or otherwise, arising directly or indirectly from the use of the information or any part of it on this website is accepted and no representation, warranty or undertaking, whether express or implied, is or will be made at any time by Principal Real Estate or its affiliates or any of their respective advisers, directors, officers, employees, representatives or other agents (“Principal Agents”) for any information or any of the opinions contained herein or for any errors, omissions or misstatements.

None of Principal Real Estate or its affiliates or any Principal Agents makes or has been authorised to make any representation or warranties, whether express or implied, in relation to Principal Real Estate or regarding the truth, accuracy or completeness of any of the information contained on this website at any time. No representation or warranty is given by Principal Real Estate, its affiliates or the Principal Agents as to the achievement or reasonableness of, and no reliance should be placed on any projections, targets, estimates or forecasts contained in the information on this website. Furthermore, nothing contained on this website is or should be relied on as a promise or representation as to the future. No reliance may be placed by any person for any purpose whatsoever on the information or opinions contained on this website or on its completeness, accuracy or fairness at any time.

Principal Global Investors (Europe) Limited is not authorised by the FCA to directly deal with retail investors; any distribution of the Fund to retail investors in Europe is facilitated by fund distributors with which Principal Global Investors (Europe) Limited has entered distribution arrangements, pursuant to advice provided to investors by those distributors, based on the documents Principal Global Investors (Europe) Limited provides. Retail investors should not be provided with access to this website.

The name of the Swiss representative is ACOLIN Fund Services AG, Stadelhoferstrasse 18, CH-8001 Zürich. The name of the Swiss paying agent is Banque Cantonale de Genève, 17, quai de l’Ile, 1204 Geneva. Investors can obtain the prospectus, trust deed, the simplified prospectuses and the annual and semi-annual reports free of charge from the representative in Switzerland.
The value of units and the income from them may fall as well as rise.

Investments in the Funds are neither insured nor guaranteed by the US Government or the Federal Deposit Insurance Corporation and are not deposits or obligations of, or guaranteed by, Principal Global Investors.

No Solicitation
Nothing contained in this website shall constitute an offer or solicitation, in relation to units in the Funds or generally, in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised.

In particular, shares issued by the Company, and units in the Funds, have not been and will not be registered under the United States Securities Act of 1933 as amended or the securities laws of any state or political subdivision of the United States and may not, except in a transaction which does not violate US securities laws, be directly offered or sold in the United States or to any US Person. The Company will not be registered under the United States Investment Company Act of 1940 as amended.

This website is reserved exclusively for non-US persons and should not be accessed by any person in the United States.

No Investment Advice
The information in this website contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such nor should it be construed as specific investment advice, an opinion or recommendation. The general information it contains does not take account of any investor’s investment objectives, particular needs or financial situation, nor should it be relied upon in any way as a forecast or guarantee of future events regarding a particular investment or the markets in general. Past performance is not a reliable indicator of future performance and should not be relied upon as a significant basis for an investment decision.

You should also inform yourself as to (a) the possible tax consequences, (b) the legal requirements and (c) any foreign exchange restrictions or exchange control requirements which you might encounter under the laws of the countries of your citizenship, residence or domicile and which might be relevant to any investment, including the subscription, holding, transfer or disposal of units in the Funds

Delegation of Investment Management to Affiliates

Products upon which composite results contained in this material, if any, are based may not themselves be available in the United Kingdom and certain other jurisdictions; however, the underlying investment management capability can be made available to institutional investors subject to all applicable local regulations and restrictions. In connection with its management of client portfolios, PGIE may delegate management authority to affiliates that are not authorised and regulated by the Financial Conduct Authority. In any such case, the client may not benefit from all protections afforded by rules and regulations enacted under the Financial Services and Markets Act 2000.

Disclaimer
The information on this website is given by Principal Global Investors in good faith and has been derived from sources believed to be reliable and accurate as at their date. However, Principal Global Investors makes no representation or warranty of any kind for the accuracy or completeness of the information and it is under no obligation to update or correct any errors in the information after the date of publication. This website also contains videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions.

Subject to applicable law, Principal Global Investors and its affiliates and their respective directors, employees and associates do not accept any responsibility arising in any way (including by reason of negligence) for errors in, or omissions from, the information and do not accept any liability for any loss or damage, however caused, as a result of any person relying on any information on the website or being unable to access the website.

The Internet is not a totally reliable and secure medium of communication. Principal Global Investors accepts no liability for the security or confidentiality of information transmitted in this way and any such transmission of information shall be at your own risk.

The entire content of this website is subject to copyright with all rights reserved. You may not copy, reproduce, distribute or modify the content of this website without the prior written permission of Principal Global Investors.

No instructions for investment purposes will be accepted directly from this website or by e-mail.

If you accept these terms and conditions, click ""Accept."""

You are about to leave PrincipalAM.com and be directed to our Japanese site, PrincipalGlobal.jp. If you wish to proceed, please click "Accept." If you would like to stay on PrincipalAM.com, please click "I do not accept."

You may view, download for caching purposes only, and print content from the website for your own personal use, subject to the restrictions set out below and elsewhere in these Terms of Use.

No Guarantee of Timeliness
This website may contain videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions. The information and materials contained on this website, and the terms, conditions, and descriptions that appear, are subject to change. All content on this website is presented only as of the date published or indicated, and may be superseded by subsequent market events or for other reasons. In addition, you are responsible for setting the cache settings on your browser to ensure you are receiving the most recent data.

No Warranties
The information on this website has been developed internally and/or obtained from sources believed to be reliable; however Principal Global Investors and its affiliates do not independently verify or guarantee its accuracy or validity. The information and services provided on this website are provided ""AS IS"" and without warranties of any kind, either expressed or implied. To the fullest extent permissible pursuant to applicable law, Principal Global Investors disclaims all warranties, including, but not limited to, any warranty of non-infringement of third-party rights and any implied warranties of merchantability and fitness for a particular purpose. Principal Global Investors does not warrant, either expressly or impliedly, the accuracy or completeness of the information, text, graphics, links or other items contained on this website and does not warrant that the functions contained in this website will be uninterrupted or error-free, that defects will be corrected, or that the website will be free of viruses or other harmful components. Principal Global Investors expressly disclaims all liability for errors and omissions in the materials on this website and for the use or interpretation by others of information contained on the website. Subject to any contrary provisions of applicable law, no company in the Principal Financial Group nor any of their employees or directors gives any warranty of reliability or accuracy nor accepts any responsibility arising in any other way (including by reason of negligence) for errors or omissions on this website.

If you have questions, please email us.

Click ""Accept"" to indicate your acknowledgement and acceptance of Principal Global Investors Terms of Use and to continue."

"Principal Global Investors, LLC, the issuer of this website, is a branch registered in the Dubai International Financial Centre and is authorized by the Dubai Financial Services Authority as a representative office.

This website contains general information only on investment matters and nothing in this website is intended to constitute or form part of any offer or inducement to issue or sell, or any solicitation of any offer to subscribe for or purchase, any securities or investment products in the UAE (including the Dubai International Financial Centre) and accordingly should not be construed as such. Information in this website is not directed at you if we are prohibited by any law of any jurisdiction from making the information on this site available to you and is not intended for any use that would be contrary to local law or regulation. Products or services mentioned on this site are subject to legal and regulatory requirements in applicable jurisdictions and may not be available in all jurisdictions. Accordingly persons are required to inform themselves of and observe any such restrictions.

The information in this website is being made available on the basis that the recipient acknowledges and understands that the entities and securities to which it may relate have not been approved, licensed by or registered with the UAE Central Bank, the Dubai Financial Services Authority or any other relevant licensing authority or governmental agency in the UAE or elsewhere in the Middle East.

The information in the following website should not be construed as investment advice or a recommendation for the purchase or sale of any security. The value of investments and the income from them may fall as well as rise. Principal Global Investors, LLC and the other member firms of Principal Global Investors (collectively, the ""Firms"")* do not guarantee any investment results and there can be no assurance that the strategies employed will improve investment performance, and make no guarantee that a client's investment objectives will be achieved and no warranties or representations, expressed or implied, are made by the Firms concerning the benefits of these strategies discussed herein. The information in this website has been developed internally and/or obtained from sources that the Firms believe to be reliable; however, the Firms do not guarantee the accuracy, adequacy or completeness of such information and are not responsible for any errors or omissions. This website also contains videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions.

This website contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such. The information it contains does not take account of any investor's investment objectives, particular needs or financial situation. Past performance is not a reliable indicator of future performance and should not be relied upon as a significant basis for an investment decision. You should consider whether an investment fits your investment objectives, particular needs and financial situation before making any investment decision.

Nothing in this website should be construed as investment, tax, legal or other advice.

The content of this website has not been approved by or filed with the UAE Central Bank or Dubai Financial Services Authority.

Access to this website is only permitted for ""sophisticated institutional investors/professional clients"". If you are not a ""sophisticated institutional investor/professional client"", you may not access this website and you should select the ""Decline"" link below.

By selecting the ""Accept"" button below, and entering this website, you agree to these terms and confirm and represent that you are a "" sophisticated institutional investor/professional client""."