Investors have priced in a negative, forward-looking view of listed real estate. Slowing growth and higher inflation have created a stagflationary backdrop that has been especially challenging for REITs. The result is that there has been a dramatic performance difference between listed and private real estate in 2022. While REITs, as measured by the FTSE Nareit All Equity REITs Index, are down -27.9% through September and down -21% through November, the NCREIF ODCE index, a measure of private real estate that is calculated quarterly, is up 13% through September on a total return basis. Based on history, we believe that gap in performance will not persist. Indeed, private real estate returns are just beginning to slow as expected. Private real estate typically lags listed real estate due to its slower-moving price discovery and transactions.

“Go West, Young Man, and Grow Up with the Country!”  The famous line from Horace Greeley’s most famous editorial was about capturing and capitalizing on the opportunity and pioneering spirit in the West. Greeley’s East was crowded and stagnant, and the best opportunities and growth lay west of the Mississippi. The availability of exciting, new opportunities and entrepreneurism in the West still applies just as much today, especially for investors.

The past year has been one of considerable disruption in the way we live, work and play.  We have seen shifts in sentiment around the value of the real estate in which we conduct these daily activities. As we look to a post-vaccine world where a return to normal is in sight, we are asking ourselves: How much of the distress has been temporary and what has been permanently impaired?  At CenterSquare we have found that when it comes to real estate valuations, the REIT market offers early insight into the direction of pricing, with the private market eventually catching up. As we look out over the next several years, the REIT tea leaves provide a great deal to consider.