Despite mixed performance among listed real estate this year, Principal Asset Management has pegged 2026 as particularly supportive for the asset class.
With equity markets fixated on the artificial intelligence (AI) boom in 2025, PAM said that positive returns from listed real estate investment trusts (REITs) have been easy to overlook.
This is especially true given the broad spread in year-to-date returns, with non-US and US healthcare REITs seeing strong gains, while US residential and data centre sectors lagged.
While the asset manager still expects performance to remain varied next year – reinforcing the need for selective stock picking and allocations – it argued that the macro backdrop going forward appears particularly supportive.
Writing in the firm’s December REIT outlook, two of PAM’s real estate specialists, Todd Kellenberger, CFA, and Nina Liu, CFA, outlined a positive view.
“Looking ahead, we see a favourable path for listed REITs if inflation remains in check, allowing the Fed [US Federal Reserve] to focus on the employment side of their mandate and provide rate cuts as needed to lift the economy,” the pair stated.
Kellenberger and Liu added that a growing economy, contained inflation, and stable or easing interest rates create a “positive backdrop” for REITs, supporting steady price appreciation driven by income growth and capital flows.
“Importantly, new supply trends are favourable, capital markets for real estate are wide open, and transaction activity is picking up – all three are tailwinds for property values.”
The firm is not alone in this view, with J.P. Morgan Asset Management (JPMAM) likewise identifying global real estate as a standout sector for the year ahead in its 2026 global alternative investments outlook.
In the report, it argued that commercial real estate is entering a “new phase of recovery”, supported by prospective rate cuts, limited supply, and continued economic expansion.
Reflecting on the past three years, Kellenberger and Liu explained that equity and real estate performance has been shaped by two major forces. The first is the surge in a small group of large cap AI stocks which are driving markets to new highs, while the second is real estate’s gradual emergence from a significant interest rate–driven repricing cycle.
However, while listed REITs have performed well, they noted that the sector has yet to match the bull run in AI equities – and has much more room to run.
“We believe markets go in cycles and as equity market returns normalise going forward, investors should remember listed REITs have been a long-term outperforming asset class,” Kellenberger and Liu said.
With the “Magnificent 7” now making up more than 30 per cent of the S&P 500 and worries about an AI bubble growing, they further argued that REITs offer a compelling alternative, with low correlations to these mega-cap tech names and a more diversified return profile.
For investors seeking liquidity and the stability of real assets, they contended that REITs deliver both, while also providing diversification at a historical discount: the earnings multiple spread between REITs and equities is at a 20-year low.
US seniors housing
The pair highlighted the US healthcare sector, and particularly senior housing, as a REIT sector currently entering a “golden era” following its post-pandemic correction.
As Kellenberger and Liu explained, an aging population and limited new construction have driven steady occupancy gains since 2021, with sector earnings recently outpacing the broader REIT market to post double-digit growth.
With favourable supply-demand dynamics, rising wages and stock markets, and strong home price growth, the firm added that it expects the sector will remain well-positioned moving forward.
This view echoes comments from Resolution Capital’s G-REIT portfolio manager, Julian Campbell-Wood, who addressed the topic at a company presentation last month.
At the time, he similarly pointed to the combination of an aging population, strong supply-demand dynamics, and pricing power to make the US private-pay model for senior housing and care well-positioned for steady investment.
“Healthcare real estate is almost the largest exposure within the [Resolution Capital G-REIT] portfolio,” Campbell-Wood said.
Overall, while PAM noted that a recession or stagflation could challenge its generally positive outlook on REITs, Kellenberger and Liu concluded that the asset class remains a strong option even during periods of market stress.
“We believe REITs are likely outperformers in a down market under a recession scenario.”
