CRE Performance Steady in Third Quarter
Institutional-quality real estate returned 3.09 percent in the third quarter–1.22 percent income return and 1.86 percent capital appreciation return–comparable to its 3.14 percent second quarter return, said the National Council of Real Estate Investment Fiduciaries’ Property Index.
The index, which measures the return of a large pool of commercial real estate properties, returned 13.48 percent over the last 12 months, split between 6.01 percent income and 7.08 percent appreciation return.
“The NCREIF returns show continued strength in the property markets, with contributions coming from both income and appreciation,” said MBA Vice President of Commercial Real Estate Research Jamie Woodwell.
NCREIF said these figures represent unleveraged returns so investors could achieve much higher leveraged returns due to the current low interest rate environment. Leveraged NPI total returns equaled 4.48 percent for the third quarter and 21.91 percent over the past year.
Woodwell said every property type and every region saw appreciation gains, “demonstrating that the rising economic and investment tides continue to float the whole market.”
The industrial sector led returns in the third quarter and the trailing year with 3.67 percent and 15.64 percent, respectively. Hotels followed closely with a 3.52 percent quarterly return and 14.62 percent for the past year. After lagging in the second quarter, retail performance improved with a 3.11 percent quarterly return. Office properties reported their first sub-3 percent quarterly total return of the year with 2.97 percent. Apartment returns fell to the lowest among the five property types, indicating a maturing expansion. Apartments returned 2.92 percent for the quarter and 12.02 percent over the past year.
Property fundamentals remained solid with occupancy up to 92.8 percent–the highest level in 14 years–and trailing-year net operating income growth of 5.7 percent, NCREIF reported. All property types displayed rising occupancy over the quarter with the highest occupancy in industrial (94.8 percent) and apartment (94.4 percent) properties. Over the year, industrial and office occupancy rose by at least 100 basis points while apartment and retail occupancy each increased 50 basis points.
Apartment and industrial properties led net operating income growth with 8.9 percent and 7.3 percent trailing NOI respectively, but the office and retail sectors also experienced healthy 4.2 percent growth.
