Institutional Investors Expect Negative Full-Year Returns

Institutional investors expect negative full-year commercial real estate returns, the Pension Real Estate Association’s Consensus Forecast Survey reported.

PREA surveyed 21 investment managers, consultants and researchers about their expectations for unlevered institutional real estate returns represented by the NCREIF Property Index. Respondents said they expect a negative 2.7 percent total return across property types this year including income.

The expectations represent a big drop from a year ago. In the same survey taken this time last year, investors said they expected to earn a 6.5 percent total return in 2019.

Cratering appreciation returns drive the drop. PREA said. Investors now expect to earn a 4.2 percent income return across property types this year but expect a negative 6.8 percent return across property types for property appreciation, yielding a negative 2.7 percent bottom line.

Things look better in the future. PREA said institutional investors expect to earn 2.5 percent across sectors next year, composed of 4.4 percent income growth and a negative 1.9 percent property appreciation rate. In 2022 the bottom line return could increase to 7.3 percent, made up of 4.4 percent income return and a 2.9 percent appreciation return.

Investors expect industrial assets to be the only property type to generate positive returns this year, PREA said. Industrial assets should see a 3.5 percent total return in 2020, made up of a 4.3 percent income return and a negative 0.8 percent appreciation rate. The apartment sector’s expected returns ranked second at negative 0.9 percent for the year, followed by office at negative 2.6 percent and retail at negative 11.4 percent