Welcome to the latest edition of Inside Real Estate Today.

My name is Rich Hill.

I'm Global Head of Real Estate Research and Strategy at Principal Asset Management.

In this edition, we're diving into three measures of sentiment for the global commercial real estate market.

First, CREFC's sentiment indicator for 1Q25.

Second, INREV's Periodic Survey of Economic Conditions for the European Commercial Real Estate Market, and then third, what are global listed REITs telling us about commercial real estate?

First, the Commercial Real Estate Finance Council, also known as CREFC, which is the industry group for the U.S.

CRE debt markets, published their 1Q25 sentiment survey.

The survey showed a 30 percentage point drop in sentiment in 1Q25, this is the second largest quarterly drop since the survey was started in 2017.

And notably, the survey is below 100 for the first time since COVID.

But we don't think the headline tells the whole story.

There's a directional correlation between year-over-year changes in property prices and the sentiment survey.

The sentiment survey at the end of last year was projecting unlevered CRE prices would rise more than 20%.

We think this is more bullish than what we were expecting, even in our bull case.

Now the survey has normalized back down to what we think is a more reasonable level, projecting year-over-year changes in unleveraged CRE prices of around 5%.

That's in line with our base case forecast for 2025.

Second, INREV, which is the industry group for the unlisted real estate market in Europe, recently published their periodic survey of economic conditions for European commercial real estate.

While the survey declined for the second consecutive period, it's notably still above 50, which suggests improving economic conditions.

Three of the five factors they consider declined, but two were notably stable or improving, the economy and operating and leasing conditions.

Maybe even more importantly, the financing markets in Europe are now the number one most bullish factor that they consider.

This suggests to us that lending conditions in Europe are improving.

Finally, we've long argued that global-listed REITs are leading indicators in both downturns and recoveries.

So what signals are the public markets sending us so far this year?

U.S. listed REITs are up around 2% this year, and real estate is the eighth best sector of the S&P 500.

Real estate was actually the fourth best sector of the S&P as recently as late April, but it's given up some of its relative returns as risk sentiment has improved in recent months.

Most importantly, we think 4% annualized returns is consistent with our view that unlevered private commercial real estate valuations can increase around 5% in the year ahead as income returns offset still-muted capital returns.

On the other hand, European-listed REITs are having a banner year.

They're up more than 25% on a USD basis and up more than 12% on a Euro basis.

We think this shows that there's renewed interest in European commercial real estate, as the sector moves from being primarily a deep value investment opportunity to one more focused on growth.