In the 2026 Global CRE Outlook: A Cycle for Selectivity, we argued that the commercial real estate (CRE) market has entered a recovery phase, as reflected in rising REIT valuations, stabilizing private CRE indices, and CRE credit markets that are open and liquid. While distress remains elevated, given it’s a lagging indicator, the broad-based decline has passed. Performance is now increasingly uneven across sectors, regions, and fund strategies, reinforcing the importance of active asset and market selection.
Based on research grounded in the Homer Hoyt framework as well as several more recent academic reports, CRE cycles typically span roughly 18 years and progress through recovery, expansion, and downturn phases. Public REIT data from the NAREIT All-Equity Index shows three complete cycles averaging approximately 16 years. Private CRE, while limited to two observable cycles and lagging public markets, exhibits a similar duration. Expansions last 11–12 years on average, far longer than recoveries (about two years) or downturns (about 1.5 years). Returns are most substantial during recoveries, though expansions still deliver double-digit annualized performance even for investors who miss the recovery phase.
By historical standards, the current CRE cycle remains young:
- Public markets: Listed REITs are up 39% from the October 2023 trough as of the end of 2025, supported by solid NOI growth and a more accommodative Federal Reserve. Valuations remain -4% below the 2021 peak as of December 31, 2025. The post-election pullback likely shifted the market briefly back into recovery, but with total returns now standing approximately 17% above April 2025 lows (inclusive of the recent rally to start 2026), the expansion appears delayed rather than derailed.
- Private markets: Valuations remain 6.8% below prior peaks as of 3Q25, but total returns have increased for six consecutive quarters, with capital returns positive for three. We expect further positive momentum when the 4Q25 returns are released in late January. Historically, once private CRE total returns turn positive, they remain positive, reflecting the autoregressive nature of private market indices. The current recovery closely mirrors the early 1990s cycle, albeit for different structural reasons.
Looking ahead, analysis of the Fed’s Senior Loan Officer Survey and year-over-year private unlevered total valuations suggests further price appreciation. Consensus expectations for unlevered total returns are projected at approximately 6% in 2026, up from 5% in 2024, driven primarily by income. Returns could approach 7% annualized over five years and high single digits over ten years. These projections reflect normalization from a decade of depressed returns rather than a sharp cyclical rebound. Beneath these headline figures, dispersion is widening—creating fertile ground for active alpha generation.
The broad-based phase of this CRE downturn has passed, and history suggests a long runway is forthcoming. However, the recovery is unlikely to be V-shaped, as in the aftermath of the Global Financial Crisis, or even U-shaped, but rather K-shaped, consistent with what’s happening across the economic landscape. What lies ahead is a market defined by dispersion, selectivity, and opportunity, a phase of the cycle that does not reward passive exposure. In fact, investors should take a page from the equity market playbook, where property type and market selection matter. For investors willing to engage with this complexity, commercial real estate is no longer a blunt macro trade; it is an increasingly differentiated source of durable alpha.
Download the full report to read more.
For Public Distribution in the U.S. For Institutional, Professional, Qualified and/or Wholesale Investor Use Only in other Permitted Jurisdictions as defined by local laws and regulations.
Risk considerations
Investing involves risk, including possible loss of Principal. Past Performance does not guarantee future return. 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. Real estate investment options are subject to some risks inherent in real estate and real estate investment trusts (REITs), such as risks associated with general and local economic conditions. Investing in REITs involves special risks, including interest rate fluctuation, credit risks, and liquidity risks, including interest conditions on real estate values and occupancy rates. Commercial real estate (CRE) investing carries several inherent risks, including those related to the economy, interest rates, market fluctuations, high upfront costs, and tenant-related issues like defaults or high turnover. Economic downturns can lead to decreased property values and increased vacancy rates, while financing costs, insurance expenses, and potential environmental or structural problems can also pose significant challenges. All these factors and risks can impact rental income and overall investment returns.
Important information.
This material covers general information only and does not take account of any investor’s investment objectives or financial situation and should not be construed as specific investment advice, a recommendation, or be relied on in any way as a guarantee, promise, forecast or prediction of future events regarding an investment or the markets in general. Information presented has been derived from sources believed to be accurate; however, we do not independently verify or guarantee its accuracy or validity. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security, nor an indication that the investment manager or its affiliates has recommended a specific security for any client account. Subject to any contrary provisions of applicable law, the investment manager and its affiliates, and their officers, directors, employees, agents, disclaim any express or implied warranty of reliability or accuracy and any responsibility arising in any way (including by reason of negligence) for errors or omissions in the information or data provided.
This material may contain ‘forward‐looking’ information that is not purely historical in nature and 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.
This material is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. .
This document is intended for use in:
- The United States by Principal Global Investors, LLC, which is regulated by the U.S. Securities and Exchange Commission.
- Europe by Principal Global Investors (Ireland) Limited, 70 Sir John Rogerson’s Quay, Dublin 2, D02 R296, Ireland. Principal Global Investors (Ireland) Limited is regulated by the Central Bank of Ireland. Clients that do not directly contract with Principal Global Investors (Europe) Limited (“PGIE”) or Principal Global Investors (Ireland) Limited (“PGII”) will not benefit from the protections offered by the rules and regulations of the Financial Conduct Authority or the Central Bank of Ireland, including those enacted under MiFID II. Further, where clients do contract with PGIE or PGII, PGIE or PGII may delegate management authority to affiliates that are not authorized and regulated within Europe and in any such case, the client may not benefit from all protections offered by the rules and regulations of the Financial Conduct Authority, or the Central Bank of Ireland. In Europe, this document is directed exclusively at Professional Clients and Eligible Counterparties and should not be relied upon by Retail Clients (all as defined by the MiFID).
- United Kingdom by Principal Global Investors (Europe) Limited, Level 1, 1 Wood Street, London, EC2V 7 JB, registered in England, No. 03819986, which is authorized and regulated by the Financial Conduct Authority (“FCA”).
- This document is marketing material and is issued in Switzerland by Principal Global Investors (Switzerland) GmbH.
- United Arab Emirates by Principal Investor Management (DIFC) Limited, an entity registered in the Dubai International Financial Centre and authorized by the Dubai Financial Services Authority as an Authorised Firm, in its capacity as distributor / promoter of the products and services of Principal Asset Management. This document is delivered on an individual basis to the recipient and should not be passed on or otherwise distributed by the recipient to any other person or organisation.
- Singapore by Principal Global Investors (Singapore) Limited (ACRA Reg. No.199603735H), which is regulated by the Monetary Authority of Singapore and is directed exclusively at institutional investors as defined by the Securities and Futures Act 2001. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
- Australia by Principal Global Investors (Australia) Limited (ABN 45 102 488 068, AFS Licence No. 225385), which is regulated by the Australian Securities and Investments Commission and is only directed at wholesale clients as defined under Corporations Act 2001.
- Hong Kong SAR by Principal Asset Management Company (Asia) Limited, which is regulated by the Securities and Futures Commission. This document has not been reviewed by the Securities and Futures Commission. This document may only be distributed, circulated or issued to persons who are Professional Investors under the Securities and Futures Ordinance and any rules made under that Ordinance or as otherwise permitted by that Ordinance.
- Other APAC Countries/Jurisdictions. This material is issued for Institutional Investors only (or professional/sophisticated/qualified investors, as such term may apply in local jurisdictions) and is delivered on an individual basis to the recipient and should not be passed on, used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Principal Global Investors, LLC (PGI) is registered with the U.S. Commodity Futures Trading Commission (CFTC) as a commodity trading advisor (CTA), a commodity pool operator (CPO) and is a member of the National Futures Association (NFA). PGI advises qualified eligible persons (QEPs) under CFTC Regulation 4.7.
Principal Asset Management℠ is a trade name of Principal Global Investors, LLC.
Insurance products and plan administrative services provided through Principal Life Insurance Co. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities are offered through Principal Securities, Inc., 800‐547‐7754, Member SIPC and/or independent broker/dealers. Principal Life, Principal Funds Distributor, Inc., and Principal Securities are members of the Principal Financial Group®, Des Moines, IA 50392.
© 2026 Principal Financial Services, Inc. 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.
