Real Estate Industry's Most Comprehensive U.S. Investment Forecast Unveiled

Dec. 5, 2005 (Des Moines, Iowa) — Investors in real estate may want to realistically calibrate their return expectations and risk tolerance levels for the year ahead. This is the advice of Principal Real Estate Investors, Real Estate Research Corporation (RERC) and CBRE/Torto Wheaton Research (TWR) in Expectations & Market Realities in Real Estate: 2006, In Search of Global Balance.

The real estate industry's most comprehensive annual forecast for the U.S. real estate market combines the qualitative and quantitative analysis of two of the industry's foremost research firms with the extensive transaction, asset management and research expertise of the fourth largest real estate investment manager in the U.S.

"This report offers a unique and unparalleled vision of the real estate industry," said Pat Halter, chief executive officer of Principal Real Estate Investors. "The advice and expertise offered in this report will help those who want to make informed real estate decisions by providing insight and guidance into a highly uncertain world."

"The global economy is affecting the investment climate for real estate more and more, and with the changing dynamics in the U.S. economy, understanding risk in real estate is taking critical importance relative to what we have seen in years past," cautioned Ken Riggs, CEO of RERC. "With huge amounts of capital continuing to be directed toward real estate and an increasing interest rate environment, there are increasing challenges for values and prices to maintain their current levels. Future real estate appreciation will come from higher income (rents), and not by the influences of the capital markets."

This year's report - In Search of Global Balance - notes that the secular forces driving increased investor appetite for real estate have been accompanied by elements of cyclical excess in the real estate debt and equity markets. Specifically, the report addresses:

While real estate is currently performing well, it is also fully priced, which lowers the margin for investor error in the event of corrections in imbalances.
The weight of capital pouring into real estate has generated significant cap rate compression and high prices resulting in a material share of real estate's historical yield advantage over other asset classes being competed away.
Eventually, this convergence of returns across asset classes likely will lead to a slight moderation of capital flows to real estate, as momentum-driven and tactical investors rotate away from real estate.
Real estate is likely entering an era of post cap rate compression, with property appreciation increasingly a function of improved space market fundamentals and income growth.

In addition to an analysis of the risks associated with real estate investment, the report presents a thorough overview of the current economic environment, the capital markets, and the outlook for real estate returns. The report also offers comprehensive overview of the investment conditions for the office, industrial, apartment, retail, and hotel markets.

Individual copies of Expectations & Market Realities in Real Estate: 2006-In Search of Balance can be purchased for $195 each by contacting RERC at www.rerc.com or 319-352-1500. Members of the media, to request a complimentary copy of the report, please contact:

Principal Real Estate Investors: Laura Dunn, 515-246-4907, dunn.laura@principal.com, or Tina Marchetti, 515-248-0065, marchetti.tina@principal.com
Real Estate Research Corporation: Barb Bush, 319-352-1500, bbush@rerc.com
CBRE/Torto Wheaton Research: Katy McMahon, 617-912-5226, kmcmahon@tortowheatonresearch.com

About Principal Real Estate Investors
Principal Real Estate Investors is the fourth largest institutional real estate manager in the United States based on tax-exempt assets under management¹ and manages or subadvises nearly $31 billion in commercial real estate assets. The firm's real estate capabilities include both public and private equity and debt investment alternatives. Principal Real Estate Investors is the dedicated real estate group of Principal Global Investors.

About The Principal Financial Group
The Principal Financial Group^® (The Principal^®)² is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance and banking through its diverse family of financial services companies. A member of the Fortune 500, the Principal Financial Group has $188.4 billion in assets under management³ and serves clients worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.

^{1) Pensions & Investments magazine annual survey of real estate managers, Oct. 17, 2005.}
^{2) "The Principal Financial Group" and "The Principal" are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.}
^{3) As of Sept. 30, 2005.}