Why REIT prices are suggesting a private market real estate recovery

The recent decline in private US real estate valuations, following their peak approximately two years ago, raises questions about when values will bottom out or begin to recover. By comparing private market valuations, which use a quarterly appraisal approach, with public market prices based on continually traded REITs, insights can be gained. Public REITs, due to their volatility and faster price changes, often act as a leading indicator for the private market, especially during peaks and troughs.

Recent data shows that from their respective peaks, private market valuations have declined by 25% through the third quarter of 2024, while public market prices have decreased by 12% over the same period. This indicates that the decline in private market values is twice that of public market prices. Interestingly, this contrasts with the situation a year ago when public market prices experienced a sharper decline compared to private market values.

The current trends suggest a potential recovery for private real estate values, as public market prices have begun to recover. The premise that public REITs can signal upcoming trends in the private market supports the expectation that private US real estate values are on the brink of recovery. This insight is valuable for financial advisors and portfolio managers looking for investment opportunities in the real estate sector.