The Real Estate Cycle Is Turning | Josh Pristaw on The New Cycle in Real Estate, Opportunity in Senior Living, Why AI Data Centers Are Too Big For Most Investors

Josh Pristaw, Managing Director and President of Clarion Partners, which manages over $70 billion in real estate assets, argues that 2026 marks the start of a new real estate cycle. Seven consecutive quarters of positive private market returns, price declines of 20 to 25 percent or more following the 2022 rate hikes, and recovered transaction volumes have restored price discovery across most asset classes. The new cycle is driven by three converging forces: rate hikes suppressed new supply starts, demand has outstripped supply across nearly every asset class except non-class-A office and life science, and prices have adjusted enough for buyers and sellers to transact again. Clarion signed approximately 8 million square feet of new leases in the first quarter of 2026, which Pristaw described as the best new leasing quarter in the firm's 44-year history, and the firm expects to break ground on approximately 10 million square feet of new industrial projects in 2026.

Senior housing is Clarion's highest conviction new investment theme. Ten thousand people turn 80 years old every day in the United States, and approximately 10 percent of people reaching that age historically move into senior living, a rate Pristaw expects to rise because current generations are wealthier than prior ones. Demand from the 80-year-old population is projected to roughly double by 2040, requiring approximately 125,000 senior housing beds built every year for the next 15 years. The peak number of units ever built in a single year in the US was 56,000, and the current construction pipeline stands at approximately 25,000 units, meaning supply capacity would need to quintuple and sustain that level for 15 years to meet demand. Clarion has acquired approximately $1 billion and 2,000 units of senior housing in the last six to seven months and expects the position to grow to multiples of its current size within 12 to 24 months. Pristaw compares the senior housing outlook to what industrial real estate looked like 15 to 20 years ago ahead of the e-commerce boom.

Clarion holds approximately $42 billion of industrial logistics assets, making it the third largest industrial owner in the United States. E-commerce sales growth is identified as the single most important demand driver, with Pristaw projecting annual e-commerce sales will increase by roughly $1 trillion per year over the next decade. He does not expect the 10 to 20 percent annual rent growth seen during peak e-commerce expansion to return but anticipates consistent incremental rent and demand growth. Net absorption turned negative in 2023 and 2024 as supply completions exceeded leasing, but has since reverted to positive territory. After Liberation Day some tenants paused leasing decisions awaiting tariff clarity but eventually resumed because they could not indefinitely delay distributing goods to customers. Industrial tenants are increasingly focused on power capacity as warehouse operations become more mechanized and robot-driven, and Northern California has emerged as one of Clarion's hottest industrial markets due to advanced manufacturing and robotics activity tied to AI.

Pristaw argues that data centers are structurally incompatible with core open-end real estate funds like Clarion's ODCE fund, which stands at approximately $18 billion. No single asset in that fund exceeds $500 million in value, making data center assets priced at $5 billion, $10 billion, or $25 billion impossible to fit within diversification constraints. Core funds also operate at low leverage, eliminating one of the primary return drivers in data center investing where leverage of around 75 percent is common. Residual value once a hyperscaler tenant departs after a ten-year lease is highly uncertain, and technology obsolescence compounds that risk. Jones Lang LaSalle estimates approximately $1 trillion of North American data center construction is underway or in planning, roughly three times the entire $280 billion institutional core real estate index, while Blackstone raised approximately $2 billion for its listed data center vehicle, representing only about 2 percent of what is currently under construction. Pristaw expects actual returns to compress toward long-term averages as the pool of end buyers proves far too small relative to supply.

Clarion owns approximately $12 billion of apartments. Multifamily prices in some markets dropped 20 percent or more from peak to trough following the 2022 rate spike. New leases nationally are roughly flat year over year in nominal terms, meaning they have declined in real terms, though lease trade-outs are stabilizing and in some markets accelerating positively. San Francisco is seeing significant rent growth driven by no new supply and AI-sector job growth, while Austin was a poor performer due to excess construction but has stabilized. Pristaw's long-term conviction is to follow migration and job growth toward the southeast and southwest. The US population aged 35 to 49 is projected to grow by 6.5 to 10 million people over the next 10 years, representing peak household formation age, and office-using employment has emerged from Clarion's AI-driven factor modeling as the most important variable driving rental growth.

Pristaw remains underweight office and expects to stay so, citing high capital expenditure requirements and cash flow volatility. Tenant improvement allowances and free rent in office leasing can amount to hundreds of dollars per square foot, compared to only a few dollars to five dollars per square foot in industrial. He draws a sharp distinction between trophy office assets, which are recovering, and non-class-A office, which he expects to see continued depreciation long term.