Welcome to the latest edition of Inside Real Estate Today. My name is Rich Hill. I'm global head of real estate strategy and research at Principal Asset Management.

This month, we are digging into trends across U.S. commercial real estate, including valuations, lending standards, and transaction volumes. Bottom line, the U.S. commercial real estate market ended 2025 on very solid footing. First, the NCREIF Odyssey Index, which tracks 25 open-ended funds that own U.S. core commercial real estate, posted total returns in the fourth quarter of 2025 of around 0.9%. This is the sixth consecutive quarter with positive total returns.

Full-year returns in 2025 were relatively subdued around 3.8%, but the real story is beneath the surface. The top quartile of funds produced returns of nearly 6%. The second quartile was around 5%, and the third quartile was approximately 4%. But the bottom quartile was in negative territory.

In other words, the index is suffering from the law of averages. This highlights a key theme of our 2026 global CRE outlook, which we titled A Cycle for Selectivity. In other words, there's widening dispersion in returns across property types, markets, and even fund vehicles.

Second, the Federal Reserve recently released their updated senior loan officer opinion survey. This survey has two important implications for the U.S. commercial real estate market. First, lending standards loosened for the first time since 2022, and second, loan demand continued to improve for the second consecutive quarter. The survey also asked a special question which indicated that lending standards will likely continue to loosen in 2026 whereas loan demand will remain on stable footing. We think an open and liquid debt market is an underappreciated tailwind for the U.S. commercial real estate market and one that suggests unlevered CRE valuations can continue to rise in the years to come.

Finally, against a backdrop where property valuations are rising and lending conditions are loosening, it shouldn't come as too much of a surprise that transaction volumes are also accelerating higher. In the fourth quarter of 2025, transaction volumes rose 30% year over year. This brought the increase in full-year transaction volumes to around 23% compared to the year prior.

This is the second consecutive year where transaction volumes rose. Importantly, even excluding data center sales, transaction volumes still rose 19% year over year. This suggests to us that the rise in transaction volumes is broad based across all property types.