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.