The case for commercial real estate as part of a well-diversified portfolio

July 18, 2023

Arthur Jones

Senior Director, Global Research and Strategy

Jonathan Frank

Manager, Global Research & Strategy

A more challenging environment

The investment landscape has been significantly impacted by the shift in the Federal Reserve’s (Fed) monetary policy beginning in March of 2022. In response to a rapid acceleration in inflation, which reached a 40-year high in the U.S., the Fed has engaged in the most aggressive rate hike cycle since the early 1980s. The central bank is also reducing the size of its balance sheet, which ballooned to over $9 trillion at the start of 2022, further reducing liquidity to capital markets.

The fallout from the shift away from a ‘zero interest rate policy’ is having a dramatic impact across all asset classes and particularly commercial real estate (CRE), which has benefited over the past decade from the low-interest rate environment. With interest rates climbing rapidly, the post-COVID boom for commercial real estate has transitioned to correction.

Despite an economy and labor market that has proved more resilient than most forecasters would have predicted at this point, the capital market environment for real estate has become much more challenging. And, while a mild to moderate recession is being priced in by capital markets, historically commercial real estate has a healthy track record of providing long-term returns for investors (see Exhibit 1).

EXHIBIT 1: Long-term private commercial real estate investors benefit from stable total returns¹
NCREIF National Property Index Total Return
Index (1990=100)

Source: NCREIF NPI, Principal Real Estate, Q1 2023. See appendix for index description. Indices are unmanaged and do not take into account fees, expenses, and transaction costs and it is not possible to invest in an index.

Continued scale and diversity

Despite a material slowdown in investment activity in the transaction market since the start of 2023, including a pull-back in cross border inflows, the U.S. remains a top destination for institutional capital on a global basis. In 2022, global investors purchased nearly $35 billion in U.S. real estate assets with Dallas, Seattle, Manhattan, Atlanta, and Chicago being the most active markets. Moreover, the U.S. commercial real estate market is incredibly liquid with an estimated market capitalization of roughly $18 trillion (as of the end of 2022).² To put this in context, the value of the U.S. stock and bond markets are $38.1 trillion and $28.8 trillion respectively.³ Within the developed world, we estimate that the total commercial real estate universe in Europe is a close second with roughly $17.0 trillion in market capitalization, followed by China and Japan adding $10.1 trillion and $2.8 trillion respectively.

In addition to its substantial investible universe, the U.S. market is also relatively liquid, as measured by the velocity and volume of transactions (Exhibit 2)—supported by a well-developed and efficient debt market. U.S. transaction volumes have been trending at historically high levels in recent years with a noteworthy share of sales (just around 7%) generated by international investors.⁴ Since the Global Financial Crisis (GFC), these foreign transactions have ranged from 7% just following the recession to a peak of 17% in 2015, which represented peak acquisition activity in the U.S. by mainland China investors. Even as Chinese investors have taken a step back from U.S. real estate, the more recent flow of international capital is meaningful in its contribution to the depth of the market and is perhaps more in line with historical norms.

EXHIBIT 2: U.S. CRE sales trend upward on a long-term basis
Cross border and North American direct acquisitions of U.S. commercial property

Source: MSCI Real Capital Analytics, Cross-Border Compendium, 31 March 2023.

Furthermore, investors in the U.S. can access a wide array of risk/return strategies across the real estate debt and equity spectrum. Most of the investment universe is within the private market (84.8%) with equity investment (direct property ownership) contributing the largest portion (63.1%) followed by debt investment (direct loans/mortgages) accounting for the remaining balance (21.7%). The balance is split between public debt, commercial mortgage-backed securities (CMBS), and real estate investment trusts (REITs), which account for 8.7% and 6.5% respectively.⁵ (See Exhibit 3).

EXHIBIT 3: The U.S. CRE market is deep and diverse
Commercial real estate universe in the U.S.
(in $ trillions)

As of 31 December 2022.

Source: Federal Reserve, NAREIT, Preqin, CoStar Portfolio Strategy, Barclays, J.P. Morgan.

The breadth of investments is another constructive feature of the U.S. private real estate market. The sheer size and variety of the U.S. economy provide both regional and economic diversity ranging from the tech-focused markets in the Northeast and Northern California, to metropolitan areas with outsized demographic growth in the Southeast and Southwest regions, which take advantage of both business and household migration due to lower costs and warmer weather. Even older and more established markets can offer investors unique opportunities. Markets like New York, with its focus on finance; Chicago known for infrastructure and corporate headquarters; and Washington DC, which serves as a seat of global political power, all offer diverse industrial and commercial real estate drivers across both traditional and alternative sectors.

EXHIBIT 4: Principal’s high-conviction private equity CRE markets
Growth drivers

Source: Principal Real Estate, 30 June 2023.

Growth in alternative sectors

Private commercial real estate in the U.S. has long been dominated by those sectors deemed as qualifying for NCREIF’s National Property Index, which were defined when the index was created in 1982. These property types—Apartment, Hotel, Industrial, Office, and Retail—still comprise the lion’s share of the private institutional investment universe (92.6%) according to data from the NCREIF research database but are increasingly losing ground to alternative sectors. Today, these emerging sectors account for nearly $80 billion, or 7.6% of all properties in the NCREIF research database.⁶ To put this figure into a broader perspective, since 2020 the value of alternative assets tracked by NCREIF has grown by 122% (Exhibit 5).

EXHIBIT 5: Alternatives to major property types are on the rise
Niche property type market value in NPI, $billions

Source: NCREIF Query Tool; Principal Real Estate, Q1 2023.

While listed REITs have long been active participants in alternative sectors such as data centers, cold storage facilities, senior housing, medical office, and self-storage, private equity real estate investors are catching up. In recognition of this trend, starting in Q3 2022, NCREIF began releasing returns for its new property type definitions, which include increased granularity of existing qualifying and non-qualifying properties such as data centers, life sciences, medical office, and single-family rentals. The reclassifications also allow institutional investors to benchmark alternative investments and gauge the depth and breadth of the market for emerging sectors more easily.

Exhibit 6 displays the new property type definitions and their shares of the overall market value for properties in the NPI research database. Though the private sector has a long way to go before it reaches parity with its public market counterpart, we believe that the growth in alternative sectors will continue to offer increased depth and diversity to private investors over the next decade.

EXHIBIT 6: Market value, shares, and 1-year returns for new property type definitions

Source: NCREIF, Principal Real Estate, Q1 2023.

Investment performance provides a compelling argument

On both a risk-adjusted and absolute basis, U.S. private real estate has an attractive historical track record. Since its inception in 1978, the NCREIF NPI has shown that U.S. commercial real estate has historically been one of the better-performing asset classes. While U.S. stocks have delivered top performance (11.4%), private CRE hasn’t been far behind delivering a compounded average annual total return of 9.0% since data started being tracked in 1978 (Exhibit 7). One of private real estate’s greatest attributes, however, is its ability to provide relatively stable income returns to investors, which acts as a governor on volatility through business cycles. A majority of commercial real estate returns are generated through income derived from rental payments on leases. As a result, private real estate has outperformed many other asset classes with respect to income return. This relatively stable return characteristic is highly valuable to income-seeking investors.

EXHIBIT 7: Commercial real estate performance holds its own as an asset class.
Compounded average annual total return (%), Q4 1977 - Q4 2022

Source: NCREIF, Barclays, Bloomberg, INREV, ANREV, Principal Real Estate, 31 December 2022; See appendix for definitions.
(*) Indices full history only dating back to Q4 2004, Q1 2000, and Q4 1987 for APAC and European Private CRE, and Global Equities (ex. U.S.), respectively. Indices are unmanaged and do not take into account fees, expenses, and transaction costs and it is not possible to invest in an index.

The income component of real estate is perhaps as important in today’s environment as ever. The yield curve has been inverted during much of the past year, which happens when investors are uncertain of current conditions and purchase long- dated securities, pushing up short-term rates. It can also occur when the Fed increases short-term rates to slow economic growth. Irrespective of the reason, we remain in a higher interest rate environment relative to the past few years, and higher rates on long-dated treasuries (e.g., the 10-year treasury) have led to compressed spreads on fixed-income assets. By comparison, yields on commercial real estate (best represented by its capitalization rate) have not only remained attractive compared with other asset classes but have historically held up better over the long run (see Exhibit 8).

EXHIBIT 8: Real estate yields holding up well on a relative basis
Q3 1994 - Q4 2022 yields (%)

Source: NCREIF, NAREIT, Barclays Live, Federal Reserve, Standard & Poor’s, Bloomberg, Moody’s Analytics, 31 December 2022; See appendix for definitions. Indices are unmanaged and do not take into account fees, expenses, and transaction costs and it is not possible to invest in an index.

While some of U.S. commercial real estate’s income yield can be attributed to an illiquidity premium, a large portion can be explained by increasing rent growth, occupancy levels, and long-term leasing agreements that help lock in more stable income returns—even through periods of negative economic growth.

Is real estate still an inflation hedge?

Inflation has been an overriding economic theme and risk to both the economic and commercial real estate outlook over the past two years. In 2022, consumer price inflation averaged 8%, its highest rate in a calendar year dating back to 1981 when consumer prices increased by 10.4%. As was the case more than 40 years ago, aggressive action by the Federal Reserve Bank sent interest rates higher, putting pressure on the economy and risk assets. Similarly, the rapid shift from accommodative to restrictive monetary policy has hurt property returns. In fact, since Q4 2022 the NPI has underperformed inflation for the first time since the GFC. Over the history of the NPI dating back to 1978, however, this has been a rare occurrence. Commercial real estate returns have historically outpaced inflation offering an excess return 87.3% of the time based on quarterly returns since 1978 across all property types. Periods where private real estate has underperformed inflation have generally corresponded to capital market dislocations or economic recessions such as the Savings & Loan crisis in the 1980s/90s and the GFC.

In the current environment, property returns have been compromised by historically low cap rates and tight spreads in a rising interest rate environment, which has resulted in lack of sales activity due to widening bid-ask spreads. Stress in the office market, due to the structural impact of the COVID-19 pandemic resulting in low levels of office utilization, has also pushed property returns lower.

That said, we still feel that there is a case for private commercial real estate as an inflation hedge. The overriding reason is the ability of commercial real estate to provide more stable income returns for long-term investors. Income has accounted for a large majority (roughly 77%) of the NPI index total returns since inception, averaging 6.9% since 1978. Over that same timeframe, inflation measured by the consumer price index averaged 3.5% (see exhibit 9).

EXHIBIT 9: Income returns provide a hedge against inflation
NPI annual income return and inflation

Source: NCREIF, Bureau of Labor Statistics, Principal Real Estate, Q1 2023.

Commercial real estate performance can also be shown to have a positive correlation with inflation. This is partially due to asset inflation or increases in capital values that occur during periods where price increases are high, as well as the ability to increase income based on leasing structure. But not all property types are created equal, as office and multifamily have the strongest positive historical correlation inflation, while retail and hotel have the weakest.

We acknowledge that unanticipated inflation creates problems for real estate investors, such as cost overruns on new development; overages on operating expenses; and more costly tenant improvement packages. Real estate, however, is unique among most other asset classes in that much of its return is derived from income that is generated from longer-term leases (with the notable exception of hotels). Income is often indexed to inflation with escalator clauses built into leases that are tied to CPI inflation, which helps preserve income over time. This is particularly true for office and industrial leases where leases run between five to 10 years, while shorter leases in retail and multifamily may also offer benefits through the pooling effect from multiple tenants within a single asset.

Lower volatility, better risk adjusted returns

When compared with other risk assets, such as stocks and even REITs, private commercial real estate is a comparatively lower risk and higher return option. When assessing the risk of an asset, the degree to which the return varies period-to-period, also known as its standard deviation or volatility, is commonly used. When calculating private commercial real estate’s volatility against other asset classes, it is less risky on a relative basis. For example, since 1977 private U.S. CRE has a standard deviation of 7.4% compared with public CRE of 19.2% and U.S. equities of 17.1%. While this lower reward-to-risk tradeoff is convincing in and of itself, one of its more persuasive arguments comes with its addition to a well-diversified investment portfolio.

EXHIBIT 10: U.S. CRE returns are attractive on an absolute and risk-adjusted basis
Returns and volatility across asset classes (Q4 1977 - Q4 2022)

Source: NCREIF, NAREIT, Barclays Live, Bloomberg, ANREV, INREV, 31 December 2022; See appendix for definitions.
(*) Indices full history only dating back to Q4 2004, Q1 2000, and Q4 1987 for APAC and European Private CRE, and Global Equities (ex. U.S.), respectively. Indices are unmanaged and do not take into account fees, expenses, and transaction costs and it is not possible to invest in an index.

Commercial real estate continues to improve portfolio outcomes

A well-held belief in finance is that a properly diversified portfolio of multiple assets may allow investors to gain a greater return for each unit of risk taken. In deciding this optimal allocation of investment funds, an asset’s risk-return profile as well as its correlation with other assets plays an important role in this decision.

Using the quarterly annual total returns of seven asset classes (Cash, U.S. Bonds, U.S. Stocks, Global Stocks ex. U.S., APAC CRE, EU CRE, U.S. CRE) from Q4 1978 to Q4 2022, Exhibit 11 displays the optimal investment portfolios constructed on a risk-return basis. The upper line (dark blue) outlines the highest return for each level of risk taken in a portfolio that includes all asset class options mentioned above while the lower line (light blue) displays the same frontier of assets but with U.S. commercial real estate removed as an investment choice. What this illustrates is that adding any allocation of U.S. commercial real estate to a portfolio already invested in some combination of global stocks, bonds, cash, and non-U.S. CRE has historically increased the portfolio’s overall return while also reducing its risk. For example, looking at portfolios A and B outlined below, if an investor wanted to construct the highest historical returned portfolio by choosing a level of risk at 6.2%, a portfolio comprised of bonds, cash, U.S. stocks, and REITs would yield an expected return of 7.6%. At that same level of risk, however, if the investor added U.S. commercial real estate in the portfolio construction, they would have been able to achieve roughly a 210 basis point increase in the portfolio’s return (9.7%). Moreover, this example also reveals that an investor wanting to take the least amount of risk possible would be better served not investing entirely in short-term cash (traditionally considered risk- free). The bottom line for investors is that adding U.S. private equity commercial real estate may allow them to achieve higher returns at the same risk profile than portfolios that omit the asset class altogether.

EXHIBIT 11: Optimal portfolio asset frontiers with and without U.S. CRE
Portfolio risk/return allocations (%), Q4 1978 to Q4 2022

Source: NCREIF, INREV, ANREV, Bloomberg, Barclays Live, Principal Asset Management, 31 December 2022.
(*) Indices full history only dating back to Q4 2004, Q1 2000, and Q4 1987 for APAC and European Private CRE, and Global Equities (ex. U.S.), respectively. Indices are unmanaged and do not take into account fees, expenses, and transaction costs and it is not possible to invest in an index.

Conclusion

While the global investment landscape may call for a more cautious risk-off approach over the next year, given higher than average inflation, elevated policy and borrowing rates, and increased risk of recession, asset classes that dampen volatility, reduce correlation to global markets, and generate income, remain at the forefront for prudent investors.

At its core, U.S. commercial real estate remains an asset class that benefits from positive economic and demographic fundamentals. Although the near-term macroeconomic outlook remains uncertain, regional diversity within the U.S. economy—across metro areas offers investors a diversification hedge to investors not available in most asset classes. Additionally, with the increased stability of its income return, U.S. commercial real estate provides risk-adjusted returns allowing investors to take advantage of potentially increased returns and the reduced risk of a well-diversified portfolio.

U.S. Private CRE

NCREIF Property Index (NPI) - provides returns for institutional grade real estate held in a fiduciary environment in the U.S.

Cash

ICE BofA US 3-Month Treasury Bill Index - measures the performance of a single issue of outstanding treasury bill which matures closest to, but not beyond, three months from the rebalancing date.

APAC Private CRE

ANREV Quarterly Fund Index (Local Currency Denominated) - measures the net asset value performance of Asia Pacific non-listed real estate funds.

U.S. Fixed Income

Bloomberg US Agg Total Return Value Unhedged USD - is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.

European Private CRE

INREV Quarterly Fund Index (Local Currency Denominated) - measures the net asset value performance of European non-listed real estate funds.

U.S. Equities

S&P 500 Total Return Index - is a market-capitalization-weighted index of 500 widelyheld stocks often used as a proxy for the stock market.

U.S. Public CRE

FTSE NAREIT All REITs Total Return Index - market capitalization-weighted index thatand includes all tax-qualified real estate investment trusts (REITs) that are listed on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market List.

Global Equities (ex-U.S.)

MSCI ACWI ex USA Gross Total Return USD Index - captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries. (excluding the US) and 27 Emerging Markets (EM) countries

Private CRE Cap Rates

NCREIF NPI Trends Report; Current Value Cap Rates

REIT CRE Cap Rates

REIT.com: Monthly Historical Index Data: 1972-2023

Bloomberg US Aggregate YTM

Barclay's Live; Yield-To-Maturity, Bloomberg US Agg. Total Return Value Unhedged USD Index

Moody's Aaa Corporate Yield

Moody's Investors Service (MIS); Moody's Analytics

U.S. 10-Year Treasury

Bloomberg; USGG10YR Index; US Generic Govt 10 Yr. Yield

S&P 500 Dividend Yield

Moody's Analytics; Standard & Poor's (S&P), closing value

Index performance information reflects no deduction for fees, expenses, or taxes. Indices are unmanaged and individuals cannot invest directly in an index.

¹ Seven-year annualized return represents the go-forward return from an investment in the designated time. For example, an investment made in Q1 2008
² Principal Real Estate, CoStar Portfolio Strategy, CBRE-EA , 2022
³ Market Value Capitalization of the Wilshire 5000 (US Stocks) and the Barclays/Bloomberg US Aggregate, 31 December 2022
⁴MSCI Real Capital Analytics, Cross Border Compendium, May 2023
⁵ Federal Reserve, NAREIT, Preqin, CoStar Portfolio Strategy, J.P. Morgan , 31 December, 2022
⁶ Based on data from NCREIF Query Tool, NCREIF Research Database, Q1 2023 for all properties in NPI or ODCE.

Real estate

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Risk Considerations
Investing involves risk, including possible loss of principal. Past performance does not guarantee future results. Potential investors should be aware of the risks inherent to owning and investing in real estate, including: value fluctuations, capital market pricing volatility, liquidity risks, leverage, credit risk, occupancy risk and legal risk. All these risks 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. Asset allocation and diversification do not ensure a profit or protection against loss.

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The information in the following website should not be construed as investment advice or a recommendation for the purchase or sale of any security. The value of investments and the income from them may fall as well as rise. Principal Global Investors, LLC and the other member firms of Principal Global Investors (collectively, the “Firms”)* do not guarantee any investment results and there can be no assurance that the strategies employed will improve investment performance, and make no guarantee that a client’s investment objectives will be achieved and no warranties or representations, expressed or implied, are made by the Firms concerning the benefits of these strategies discussed herein. The information in this website has been developed internally and/or obtained from sources that the Firms believe to be reliable; however, the Firms do not guarantee the accuracy, adequacy or completeness of such information and are not responsible for any errors or omissions. This website also contains videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information.

It contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such nor should it be construed as specific investment advice, an opinion or recommendation. Products and services mentioned in this website may or may not be registered in your jurisdiction for retail distribution or suitable for all types of investors. The general information it contains does not take account of any investor›s investment objectives, particular needs or financial situation, nor should it be relied upon in any way as a forecast or guarantee of future events regarding investment or the markets in general. All expressions of opinion and prediction in this website 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.

Past performance is not a reliable indicator of future performance and should not be relied upon as a significant basis for an investment decision. You should consider whether an investment fits your investment objectives, particular needs and financial situation before making any investment decision.

Access to this website and its content is only permitted for “institutional investors” in Singapore within the meaning given to that term in section 4A of the Securities and Futures Act 2001 (“Act”) or “Professional Investors” in Hong Kong within the meaning given to that term under the Securities and Futures Ordinance. It is not intended for any retail investors.

The website may contain information on funds that are registered as restricted schemes under the Sixth Schedule to the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations in Singapore. The offer, holding and subsequent transfer of shares are subject to restrictions and conditions stipulated under the Act and the units in those funds are not allowed to be offered to the retail public. The shares of these funds are being offered only on the basis of the information contained in the relevant Information Memorandum. The Information Memorandum is not a prospectus as defined in the Act and accordingly, statutory liability under the Act in relation to the content of prospectuses does not apply. The Monetary Authority of Singapore has not, in any way, considered the investment merits of the funds and assumes no responsibility for the contents of the website and/or that of the Information Memorandum.

It is your responsibility to be aware of and to observe all applicable laws and regulations of any relevant jurisdiction. If you are not an “institutional investor” in Singapore or a “Professional Investor” in Hong Kong you may not access this website and you should select the “I Do Not Accept” button below.

By selecting the “Accept” button below, and entering this website, you are representing and warranting that the applicable laws and regulations of your jurisdiction allow you to access the website and that you have agreed to these terms and confirm and represent that you are an “institutional investor” in Singapore or a “Professional Investor” in Hong Kong."

Principal Global Investors (Australia) Ltd. (ABN 45 102 488 068, AFS Licence No. 225385) ("we", "us", "our") is regulated by the Australian Securities and Investments Commission.

The information in this website, and on pages linked by this website, is general information only and is not intended to constitute financial product advice or a recommendation to buy, sell or hold any particular security or investment. It does not take into account any investor's investment objectives, particular needs or financial situation. Any investor should consider whether an investment fits their investment objectives, particular needs and financial situation before making any investment decision.

While the information on this website is updated from time to time, it is subject to change in the intervening period. None of Principal Global Investors (Australia) Limited or its related entities (together "Principal") guarantee the accuracy, completeness or timeliness of the information on this website. Information may become outdated and opinions may change, including as a result of new information becoming available or changes in the markets. To the extent permitted by law, Principal does not accept any responsibility arising in any way (including by reason of negligence) for errors in, or omissions from, this information.

We offer financial products only to wholesale investors (as defined in sections 761G and 761GA of the Corporations Act) and to persons investing through an investor directed portfolio service under the product disclosure statements that can be accessed from this website.

The information contained in this website is intended only for Australian residents and investors and is not intended for use in any country or jurisdiction where such use would constitute a violation of law. There is no intention to offer or sell products in countries or jurisdictions where such offer or sale would be unlawful under the relevant domestic law.

Protecting Your Privacy

At Principal Global Investors (Australia) Ltd, we give priority to protecting the privacy of your personal information. We do this by handling personal information in a responsible manner and in accordance with the Privacy Act 1988 (Cth).

If it is reasonable and practicable to do so, we collect personal information directly from you. How we collect your information will depend upon how you interact with us. We may collect it through application forms, telephone, email and internet contact, from correspondence with you or your consultant and in person.

The information collected may include what time you visited our website, how long you were on our site, if you've been to the site before, what web pages you visited, and what type of browser you used to access our website. This information is collected through the use of cookies.

Use of cookies on this site is outlined in the Principal Online Privacy Policies, Information Collected by Use of Cookies and Spotlight Tags. In accepting these terms and conditions, you accept the terms of the use of cookies from this site. You can configure your browser to accept all cookies, reject all cookies, or notify you when a cookie is sent. Refer to your browser instructions or help screens to learn about these functions. If you reject all cookies, you may not be able to use our web sites.

We may collect, hold and use personal information in order to process applications, administer the investments and provide related services. If you do not provide your personal information to us, we may not be able to process and administer your investment. We may also use your personal information to tell you about other products and services offered by us or other members of the Principal Financial Group. Please contact us if you do not wish to receive this ongoing information.

We may disclose your personal information to other related companies within the Principal Financial Group®, agents and other external service providers (who supply administrative, financial or other services), some of which are located overseas. Where this occurs, we take steps to protect personal information against misuse or loss however you should be aware that in the event the overseas recipient fails to handle the personal information consistently with the Australian Privacy Principles, we will not be accountable under the Privacy Act and you will not be able to seek redress under the Act. The countries this information may be disclosed to will vary from time to time, but may include Brazil, Chile, China, Hong Kong, India, Japan, Malaysia, Singapore, the United Kingdom and the United States and other countries where the Principal Financial Group® has a presence. A list of locations in which the Principal Financial Group® operates can be found at https://www.principal.com/about-us/our-company/company-overview/worldwide-locations. Our Privacy Policy contains information about how you can gain access to the personal information that we hold about you and seek correction of that information, subject to certain exemptions under law. Our Privacy Policy also contains information about how you may raise concerns regarding privacy with us and how we will deal with your concerns.

You can obtain a copy of our Privacy Policy by clicking on the link below:

Privacy at Principal Global Investors (Australia) Limited

By clicking "Accept", you consent to us dealing with your personal information in the manner set out in our Privacy Policy. You also acknowledge and understand that by providing such consent that we will not be required to take such steps as are reasonable in the circumstances to ensure overseas recipients of your personal information comply with the Australian Privacy Principles.

"Principal Financial Group is a global organization that operates in many different jurisdictions worldwide. Principal Financial Group’s diversified group of companies and affiliates provide comprehensive asset management solutions for institutional investors, investment funds and individuals in key markets around the world. Principal Financial Group has investment offices in the United States, [Mexico, South America, Europe, the Middle East, and throughout Asia]. Where appropriate, Principal Financial Group entities are registered with appropriate regulatory authorities in the jurisdictions in which they are required to be registered to carry on their respective business activities.

All products or services provided to you by any Principal Financial Group company shall only be available in the jurisdiction(s) within which the company providing the product or service is authorized to operate. The relevant Principal Financial Group company reserves the right to make the final determination on whether or not you are eligible for any particular product or service. If you choose to enter a website outside your country of residence, you are advised that it may not be legal in that jurisdiction for you to access or use the facilities available on that Site and the legal requirements of that jurisdiction may prohibit you from dealing or otherwise transacting in that jurisdiction.

Principal Financial Group makes no representation that the content of the site is appropriate for use in all locations, or that the transactions, securities, products, instruments or services discussed at this site are available or appropriate for sale or use in all jurisdictions or countries, or by all persons and entities. Nothing on this website shall be considered a solicitation for the offering of any investment product or service to any person in any jurisdiction where such solicitation or offering may not lawfully be made.

You may view, download for caching purposes only, and print content from the website for your own personal use, subject to the restrictions set out below and elsewhere in these Terms of Use.

No Guarantee of Timeliness
This website may contain videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions. The information and materials contained on this website, and the terms, conditions, and descriptions that appear, are subject to change. All content on this website is presented only as of the date published or indicated, and may be superseded by subsequent market events or for other reasons. In addition, you are responsible for setting the cache settings on your browser to ensure you are receiving the most recent data.

No Warranties
The information on this website has been developed internally and/or obtained from sources believed to be reliable; however Principal Global Investors and its affiliates do not independently verify or guarantee its accuracy or validity. The information and services provided on this website are provided ""AS IS"" and without warranties of any kind, either expressed or implied. To the fullest extent permissible pursuant to applicable law, Principal Global Investors disclaims all warranties, including, but not limited to, any warranty of non-infringement of third-party rights and any implied warranties of merchantability and fitness for a particular purpose. Principal Global Investors does not warrant, either expressly or impliedly, the accuracy or completeness of the information, text, graphics, links or other items contained on this website and does not warrant that the functions contained in this website will be uninterrupted or error-free, that defects will be corrected, or that the website will be free of viruses or other harmful components. Principal Global Investors expressly disclaims all liability for errors and omissions in the materials on this website and for the use or interpretation by others of information contained on the website. Subject to any contrary provisions of applicable law, no company in the Principal Financial Group nor any of their employees or directors gives any warranty of reliability or accuracy nor accepts any responsibility arising in any other way (including by reason of negligence) for errors or omissions on this website.

If you have questions, please email us.

Click ""Accept"" to indicate your acknowledgement and acceptance of Principal Global Investors Terms of Use and to continue."

"These Terms & Conditions explain certain legal and regulatory conditions and restrictions in relation to the Principal Global Investors (Europe) Limited website, and in relation to the Principal Global Investors Funds (‘the Funds’). This information may be changed by Principal Global Investors at any time without notice.

In these terms and conditions, references to 'Principal Global Investors' means Principal Global Investors (Europe) Limited or any affiliate of the Principal Financial Group, Inc. or Principal Global Investors, LLC.

Before you proceed, you must acknowledge that you have read, and agree to, our terms and conditions.

Information in relation to the Principal Global Investors Funds is available through this web site to institutional investors resident in the following countries of: Belgium, France, Finland, Germany, Guernsey, Ireland, Italy, Jersey, Netherlands, Spain, Sweden, Switzerland and the United Kingdom. By proceeding this far you are representing and warranting that you are an institutional investor resident in one of these countries. Not all of the Funds are available in all these jurisdictions, and investors are directed to the Country Registration document for detailed information. What follows is not an offer or invitation to acquire an investment to, and should therefore not be relied upon by, any person anywhere other than the countries noted. Persons in respect of whom such prohibitions apply must not access this web site. This web site is reserved exclusively for non-U.S. persons and should not be accessed by any person in the United States.

Yes, I certify to be an institutional investor and resident of a country listed above.

Cookies
Use of cookies on this site is outlined in the Privacy and Security Policy. In accepting these terms and conditions, you accept the terms of the Cookie Policy and the use of cookies from this site.

Legal Entity Disclosure and Regulation
In Europe by Principal Global Investors (Ireland) Limited, 70 Sir John Rogerson’s Quay, Dublin 2, D02 R296, Ireland. Principal Global Investors (Ireland) Limited is regulated by the Central Bank of Ireland.

In the United Kingdom by Principal Global Investors (Europe) Limited, Level 1, 1 Wood Street, London, EC2V 7 JB, registered in England, No. 03819986, which is authorised and regulated by the Financial Conduct Authority (“FCA”).

In Switzerland by Principal Global Investors (Switzerland) GmbH. This website is considered as advertising and information contained herewith be treated as such. Investors can obtain free of charge the prospectus, trust deed, the prospectus, the key investor information document (KIID), and the annual and semi-annual reports from the representative in Switzerland.

In Europe and United Kingdom, this website is directed exclusively at Professional Clients and Eligible Counterparties and should not be relied upon by Retail Clients (all as defined by the MiFID and FCA respectively). If you are viewing the material as a retail investor, you should seek independent investment advice before deciding whether the products and services in question are suitable to meet your investment needs and objectives, as the language has not been complied to a retail client standard.

Principal Global Investors Funds
Principal Global Investors (Ireland) Limited is the issuer of the Funds. Investments may only be made on an application form attached to a current prospectus and following receipt by the investor of the KIID in respect of the Fund in which they intend to invest. The latest version of the prospectus of the Funds is dated 14 December 2012.

For Real estate investors in the European Economic Area (“EEA”), this website and the information on it is only directed at persons who are professional investors for the purposes of the Alternative Investment Fund Managers Directive (2011/61/EU) (“AIFMD”), professional clients or eligible counterparties for the purposes of the Markets in Financial Instruments Directive (Directive 2014/65/EU) (“MiFID II”) or as otherwise defined under applicable local law and regulation and at whom this website and the information on it may lawfully be directed in any relevant jurisdiction (“Eligible Persons”). In relation to each member state of the EEA (“Member State”) which has implemented AIFMD (and for which transitional arrangements are not/ no longer available), this website may only be accessed and interests in Funds may only be offered or placed in a Member State to the extent that: (i) the relevant Fund is permitted to be marketed to professional investors in the relevant Member State in accordance with AIFMD (as implemented into the local law/regulation of the relevant Member State); or (ii) this website and its information may otherwise be lawfully distributed and the interests in Funds may otherwise be lawfully offered or placed in that Member State (including at the initiative of the investor). In relation to each Member State of the EEA which, at the date of accessing this website, has not implemented AIFMD, this information may only be distributed and interests in Funds may only be offered or placed to the extent that this information may be lawfully distributed and the interests in Funds may lawfully be offered or placed in that Member State (including at the initiative of the investor).

Persons who are not Eligible Persons, including but not limited to those individuals or other persons who fall within the FCA’s definition of ‘retail clients’, should not use or rely upon this website or the information contained therein and may not engage the services of Principal Real Estate or any of its affiliates, or invest in any Fund. Potential investors are advised that all or most of the protections provided by the UK regulatory system will not apply and that the UK Financial Services Compensation Scheme may not be available in relation to an investment in a Fund or separate account.

The contents of this website have not been verified or approved by any competent regulatory or supervisory authority. No liability, whether in negligence or otherwise, arising directly or indirectly from the use of the information or any part of it on this website is accepted and no representation, warranty or undertaking, whether express or implied, is or will be made at any time by Principal Real Estate or its affiliates or any of their respective advisers, directors, officers, employees, representatives or other agents (“Principal Agents”) for any information or any of the opinions contained herein or for any errors, omissions or misstatements.

None of Principal Real Estate or its affiliates or any Principal Agents makes or has been authorised to make any representation or warranties, whether express or implied, in relation to Principal Real Estate or regarding the truth, accuracy or completeness of any of the information contained on this website at any time. No representation or warranty is given by Principal Real Estate, its affiliates or the Principal Agents as to the achievement or reasonableness of, and no reliance should be placed on any projections, targets, estimates or forecasts contained in the information on this website. Furthermore, nothing contained on this website is or should be relied on as a promise or representation as to the future. No reliance may be placed by any person for any purpose whatsoever on the information or opinions contained on this website or on its completeness, accuracy or fairness at any time.

Principal Global Investors (Europe) Limited is not authorised by the FCA to directly deal with retail investors; any distribution of the Fund to retail investors in Europe is facilitated by fund distributors with which Principal Global Investors (Europe) Limited has entered distribution arrangements, pursuant to advice provided to investors by those distributors, based on the documents Principal Global Investors (Europe) Limited provides. Retail investors should not be provided with access to this website.

The name of the Swiss representative is ACOLIN Fund Services AG, Stadelhoferstrasse 18, CH-8001 Zürich. The name of the Swiss paying agent is Banque Cantonale de Genève, 17, quai de l’Ile, 1204 Geneva. Investors can obtain the prospectus, trust deed, the simplified prospectuses and the annual and semi-annual reports free of charge from the representative in Switzerland.
The value of units and the income from them may fall as well as rise.

Investments in the Funds are neither insured nor guaranteed by the US Government or the Federal Deposit Insurance Corporation and are not deposits or obligations of, or guaranteed by, Principal Global Investors.

No Solicitation
Nothing contained in this website shall constitute an offer or solicitation, in relation to units in the Funds or generally, in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised.

In particular, shares issued by the Company, and units in the Funds, have not been and will not be registered under the United States Securities Act of 1933 as amended or the securities laws of any state or political subdivision of the United States and may not, except in a transaction which does not violate US securities laws, be directly offered or sold in the United States or to any US Person. The Company will not be registered under the United States Investment Company Act of 1940 as amended.

This website is reserved exclusively for non-US persons and should not be accessed by any person in the United States.

No Investment Advice
The information in this website contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such nor should it be construed as specific investment advice, an opinion or recommendation. The general information it contains does not take account of any investor’s investment objectives, particular needs or financial situation, nor should it be relied upon in any way as a forecast or guarantee of future events regarding a particular investment or the markets in general. Past performance is not a reliable indicator of future performance and should not be relied upon as a significant basis for an investment decision.

You should also inform yourself as to (a) the possible tax consequences, (b) the legal requirements and (c) any foreign exchange restrictions or exchange control requirements which you might encounter under the laws of the countries of your citizenship, residence or domicile and which might be relevant to any investment, including the subscription, holding, transfer or disposal of units in the Funds

Delegation of Investment Management to Affiliates

Products upon which composite results contained in this material, if any, are based may not themselves be available in the United Kingdom and certain other jurisdictions; however, the underlying investment management capability can be made available to institutional investors subject to all applicable local regulations and restrictions. In connection with its management of client portfolios, PGIE may delegate management authority to affiliates that are not authorised and regulated by the Financial Conduct Authority. In any such case, the client may not benefit from all protections afforded by rules and regulations enacted under the Financial Services and Markets Act 2000.

Disclaimer
The information on this website is given by Principal Global Investors in good faith and has been derived from sources believed to be reliable and accurate as at their date. However, Principal Global Investors makes no representation or warranty of any kind for the accuracy or completeness of the information and it is under no obligation to update or correct any errors in the information after the date of publication. This website also contains videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions.

Subject to applicable law, Principal Global Investors and its affiliates and their respective directors, employees and associates do not accept any responsibility arising in any way (including by reason of negligence) for errors in, or omissions from, the information and do not accept any liability for any loss or damage, however caused, as a result of any person relying on any information on the website or being unable to access the website.

The Internet is not a totally reliable and secure medium of communication. Principal Global Investors accepts no liability for the security or confidentiality of information transmitted in this way and any such transmission of information shall be at your own risk.

The entire content of this website is subject to copyright with all rights reserved. You may not copy, reproduce, distribute or modify the content of this website without the prior written permission of Principal Global Investors.

No instructions for investment purposes will be accepted directly from this website or by e-mail.

If you accept these terms and conditions, click “Accept.”

You are about to leave PrincipalAM.com and be directed to our Japanese site, PrincipalGlobal.jp. If you wish to proceed, please click "Accept." If you would like to stay on PrincipalAM.com, please click "I do not accept."

You may view, download for caching purposes only, and print content from the website for your own personal use, subject to the restrictions set out below and elsewhere in these Terms of Use.

No Guarantee of Timeliness
This website may contain videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions. The information and materials contained on this website, and the terms, conditions, and descriptions that appear, are subject to change. All content on this website is presented only as of the date published or indicated, and may be superseded by subsequent market events or for other reasons. In addition, you are responsible for setting the cache settings on your browser to ensure you are receiving the most recent data.

No Warranties
The information on this website has been developed internally and/or obtained from sources believed to be reliable; however Principal Global Investors and its affiliates do not independently verify or guarantee its accuracy or validity. The information and services provided on this website are provided ""AS IS"" and without warranties of any kind, either expressed or implied. To the fullest extent permissible pursuant to applicable law, Principal Global Investors disclaims all warranties, including, but not limited to, any warranty of non-infringement of third-party rights and any implied warranties of merchantability and fitness for a particular purpose. Principal Global Investors does not warrant, either expressly or impliedly, the accuracy or completeness of the information, text, graphics, links or other items contained on this website and does not warrant that the functions contained in this website will be uninterrupted or error-free, that defects will be corrected, or that the website will be free of viruses or other harmful components. Principal Global Investors expressly disclaims all liability for errors and omissions in the materials on this website and for the use or interpretation by others of information contained on the website. Subject to any contrary provisions of applicable law, no company in the Principal Financial Group nor any of their employees or directors gives any warranty of reliability or accuracy nor accepts any responsibility arising in any other way (including by reason of negligence) for errors or omissions on this website.

If you have questions, please email us.

Click ""Accept"" to indicate your acknowledgement and acceptance of Principal Global Investors Terms of Use and to continue."

"Principal Global Investors, LLC, the issuer of this website, is a branch registered in the Dubai International Financial Centre and is authorized by the Dubai Financial Services Authority as a representative office.

This website contains general information only on investment matters and nothing in this website is intended to constitute or form part of any offer or inducement to issue or sell, or any solicitation of any offer to subscribe for or purchase, any securities or investment products in the UAE (including the Dubai International Financial Centre) and accordingly should not be construed as such. Information in this website is not directed at you if we are prohibited by any law of any jurisdiction from making the information on this site available to you and is not intended for any use that would be contrary to local law or regulation. Products or services mentioned on this site are subject to legal and regulatory requirements in applicable jurisdictions and may not be available in all jurisdictions. Accordingly persons are required to inform themselves of and observe any such restrictions.

The information in this website is being made available on the basis that the recipient acknowledges and understands that the entities and securities to which it may relate have not been approved, licensed by or registered with the UAE Central Bank, the Dubai Financial Services Authority or any other relevant licensing authority or governmental agency in the UAE or elsewhere in the Middle East.

The information in the following website should not be construed as investment advice or a recommendation for the purchase or sale of any security. The value of investments and the income from them may fall as well as rise. Principal Global Investors, LLC and the other member firms of Principal Global Investors (collectively, the ""Firms"")* do not guarantee any investment results and there can be no assurance that the strategies employed will improve investment performance, and make no guarantee that a client's investment objectives will be achieved and no warranties or representations, expressed or implied, are made by the Firms concerning the benefits of these strategies discussed herein. The information in this website has been developed internally and/or obtained from sources that the Firms believe to be reliable; however, the Firms do not guarantee the accuracy, adequacy or completeness of such information and are not responsible for any errors or omissions. This website also contains videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions.

This website contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such. The information it contains does not take account of any investor's investment objectives, particular needs or financial situation. Past performance is not a reliable indicator of future performance and should not be relied upon as a significant basis for an investment decision. You should consider whether an investment fits your investment objectives, particular needs and financial situation before making any investment decision.

Nothing in this website should be construed as investment, tax, legal or other advice.

The content of this website has not been approved by or filed with the UAE Central Bank or Dubai Financial Services Authority.

Access to this website is only permitted for ""sophisticated institutional investors/professional clients"". If you are not a ""sophisticated institutional investor/professional client"", you may not access this website and you should select the ""Decline"" link below.

By selecting the ""Accept"" button below, and entering this website, you agree to these terms and confirm and represent that you are a "" sophisticated institutional investor/professional client""."