27 Nov 2017

Inside Real Estate - Annual Strategy Outlook for 2018

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by Indraneel Karlekar, Ph.D., Senior Managing Director, Global Research & Strategy
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A growing sense that both the economic and real estate cycles are past their primes has investors asking, “Where do we go from here?” In an environment of heightened political stress and potentially discordant monetary policies, we recognize that a complex path lies ahead. The themes we’ve identified will help you navigate through 2018 and beyond.

May you live in interesting times: Five themes to guide us through 2018

  • Economics trumps politics temporarily
  • Synchronicity in global growth
  • Expect higher short-term interest rates in 2018
  • Remain constructive but brace for uncertainty
  • Increasing convergence in investment performance expectations

Disclosure

Unless otherwise noted, the information in this document has been derived from sources believed to be accurate as of November 2017. Information derived from sources other than Principal Global Investors or its affiliates is believed to be reliable; however, we do not independently verify or guarantee its accuracy or validity. Past performance is not necessarily indicative or a guarantee of future performance and should not be relied upon to make an investment decision.

The information in this document contains general information only on investment matters. It does not take account of any investor’s investment objectives, particular needs or financial situation and should not be construed as specific investment advice, an opinion or recommendation or be relied on in any way as a guarantee, promise, forecast or prediction of future events regarding a particular investment or the markets in general. All expressions of opinion and predictions in this document are subject to change without notice. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security, nor an indication that Principal Global Investors or its affiliates has recommended a specific security for any client account.

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Any representations, example, or data not specifically attributed to a third party herein, has been calculated by, and can be attributed to Principal Global Investors. Principal Global Investors disclaims any and all express or implied warranties of reliability or accuracy arising out of any for error or omission attributable to any third party representation, example, or data provided herein.

Indices are unmanaged and do not take into account fees, expenses and transaction costs and it is not possible to invest directly in an index.

The MSCI US REIT Index is a capitalization-weighted benchmark index of most actively traded Real Estate Investment Trusts (REITs), designed to measure real estate performance.
All figures shown in this document are in U.S. dollars unless otherwise noted.
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In Europe, this document is directly exclusively at Professional Clients and Eligible Counterparties and should not be relied upon by Retail Clients (all as defined by MiFID). In connection with its management of client portfolios, Principal Global Investors (Europe) Limited may delegate management authority to affiliates that are not authorized and regulated within Europe. In any such case, the client may not benefit from all protections offered by rules and regulations enacted under MiFID. This material is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.

REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration.

Fixed-income investment options that invest in mortgage securities, such as commercial mortgage-backed securities, are subject to increased risk due to real estate exposure.

Investing involves risk, including loss of principal.

Potential investors should be aware of the many risks inherent to owning and investing in real estate, including: adverse general and local economic conditions that can depress the value of the real estate, capital market pricing volatility, declining rental and occupancy rates, value fluctuations, lack of liquidity or illiquidity, leverage, development and lease-up risk, tenant credit issues, circumstances that can interfere with cash flows from particular commercial properties such as extended vacancies, increases in property taxes and operating expenses and casualty or condemnation losses to the real estate, and changes in zoning laws and other governmental rules, physical and environmental conditions, local, state or national regulatory requirements, and increasing property expenses, all of which can lead to a decline in the value of the real estate, a decline in the income produced by the real estate, and declines in the value or total loss in value of securities derived from investments in real estate.

Direct investments in real estate are highly illiquid and subject to industry or economic cycles resulting in downturns in demand.

Accordingly, there can be no assurance that investments in real estate will be able to be sold in a timely manner and/or on favorable terms.

As a general matter, the strategy entails a high degree of risk and is suitable only for investors for whom such an investment is not a complete investment program and who fully understand and is capable of bearing the risks associated with such strategy.

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Principal Global Investors is the asset management arm of the Principal Financial Group. Principal Real Estate Investors is the dedicated investment manager for Principal Global Investors.
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