Private Real Estate: Signs and Trends Supporting a Rebound

As a levered asset class, real estate performance is inextricably linked to interest rate movements and the availability of financing. The start of the Fed’s easing cycle last year therefore marked an inflection point for improvement in real estate values. Still, historically, real estate valuations have been slow to respond to rate cuts.

That could all be changing. We believe the sector is now poised to benefit from a number of economic tailwinds, with both cyclical and structural trends at play in the sector.

Cyclical Momentum

Sentiment around the asset class has been improving, as bidding interest has increased in recent months. This has translated to increased transaction activity, as shown in the chart below. Relative to the first quarter of 2024, real estate transaction volumes have increased by 12. Real rates declined through the end of March, while commercial mortgage backed securities (CMBS) spreads stayed put, facilitating the most active first quarter for real estate transactions since the first quarter of 2022.¹ Early data suggests April transaction volume was also healthy, which is a good sign for the second quarter. 

Although volumes are still low relative to the 10-year average, the improvement in the first quarter indicates the willingness of buyers and sellers to transact at the current level of financing and should translate into further price improvements down the road.

As a result, we have already seen marked price improvement; over the past 12 months, commercial property prices increased 3.4%.²

Unlike prior real estate cycles, real estate currently enjoys strong underlying fundamentals—outside of certain segments of the office sector—thanks to a tight labor market, relatively low supply and consistent demand. Income growth has remained strong, supporting many sectors, such as U.S. industrials and U.S. apartments, which are often tied to inflation.

With improved valuations, especially in residential and logistics sectors, and more stable transaction pricing for key sectors, we believe many regional markets are likely well past the bottom of the cycle.

Structural Tailwinds

Among the most important drivers of returns for real estate investing are long-term structural trends. Take, for example, logistics facilities, which continue to benefit from higher demand based on longer-term trends, including the increasing digitization of daily life, the rewiring of supply chains and the reality of geopolitical tensions. This also can include properties that facilitate e-commerce, the growth of new trade partners, and stronger demand among tenants for energy-efficient buildings.

In the residential sector, meanwhile, shifting demographic trends are driving growth, including millennials forming families that need larger-format rentals, and Baby Boomers that need aging-friendly living situations. A persistent undersupply of affordable housing stock also equates to strong demand for rentals.

Summing Up

As we move into this new cycle, we believe it will likely look very different to the period following the global financial crisis, as the cost of capital is relatively higher. This in turn creates the potential for further dispersion in valuations, which translates into the potential for maximizing gains and losses in transaction values. A rising tide does not lift all boats, and dispersion in performance is likely both within and between sectors and markets.

This creates the potential for a widening gap between the winners and losers in the new real estate cycle. But this also creates greater potential for alpha generation. The skill of an experienced real estate manager with a track record navigating cycles is critical to achieving outperformance in periods of volatility.

Read more in our Alts Quarterly Q3 2025.

ENDNOTES

1 Preqin, as of March 2025.
2 Source: Green Street Advisors, as of July 2025.

A WORD ABOUT RISK

As an asset class, private credit comprises a large variety of different debt instruments. While each has its own risk and return profile, private credit assets generally have increased risk of default, due to their typical opportunistic focus on companies with limited funding options, in comparison with their public equivalents.

Because private credit usually involves lending to below-investment-grade or non-rated issuers, yield on private credit assets is increased in return for taking on increased risk.

Investments in real estate-related instruments may be affected by economic, legal or environmental factors that affect property values, rents or occupancies of real estate. Infrastructure companies may be subject to a variety of factors that may adversely affect their business, including high interest costs, high leverage, regulation costs, economic slowdown, surplus capacity, increased competition, lack of fuel availability and energy conservation policies.

Alternative investments often are speculative and include a high degree of risk. Investors could lose all or a substantial amount of their investment. High-yield bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally, the longer a bond’s maturity, the more sensitive it is to this risk. Yields are subject to change with economic conditions. Yield is only one factor that should be considered when making an investment decision.

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Bloomberg Global Aggregate Index is a market capitalization-weighted index, comprising globally traded investment grade bonds. The index includes government securities, mortgage backed securities, asset-backed securities and corporate securities to simulate the universe of bonds in the market. The maturities of the bonds in the index are more than one year.

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FTSE EPRA Nareit Developed Real Estate Index is an unmanaged market- capitalization-weighted total-return index that consists of publicly traded equity REITs and listed property companies from developed markets.

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Preqin Private Equity Index captures in an index the return earned by investors on average in their private equity portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter.

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