Commercial estate values declined nearly 20 percent unlevered (more than 30 percent levered) from fourth quarter 2022 through third quarter 2024, while U.S. home prices rose to record highs despite mortgage rates reaching 20-year peaks. Commercial real estate returns are poised to outperform housing prices for the first time since fourth quarter 2022, driven by resilient income returns and improving capital markets, according to Rich Hill, global head of real estate research and strategy for Principal Asset Management. Hill believes this shift marks the start of a new cycle, one less driven by interest rates and more by fundamentals such as income growth and geographic nuance.
Why is it unusual for commercial real estate total returns and residential housing prices to sharply diverge, as they have since early 2023?
Commercial real estate and housing prices are historically directionally correlated, with housing serving as a le
