Institutional Real Estate Continues to Improve
CHICAGO, IL, April 26, 2021 – The National Council of Real Estate Investment Fiduciaries (NCREIF) has released first quarter 2021 results for the NCREIF Property Index (NPI). The NPI reflects investment performance for 9,442 commercial properties, totaling $717 billion of market value. The returns are detailed in the attached Snapshot Report.
The quarterly total return was 1.72%, up from 1.15% in the prior quarter, higher than 2020q1’s return of 0.71%, and slightly below 2019q1’s return of 1.80%. These are unleveraged returns for what is primarily “core” real estate held by institutional investors throughout the US. Properties with debt financing had a leveraged total return of 1.38% and a 1.16% unleveraged return for the current quarter. Although these properties had positive leverage, the return before any leverage was lower than the NPI unleveraged return of 1.72%. As of quarter-end there were 4,069 properties with leverage and the weighted average loan to value ratio was 45%.
NPI Unleveraged Total Quarterly Returns
The total return of 1.72% for the quarter consisted of 1.04% of income and 0.67% of appreciation compared to 1.00% of income and 0.14% of appreciation last quarter. While appreciation is after the deduction of capital expenditures, market values increased by 0.90% this quarter compared to 0.49% last quarter.
NCREIF Market Value Index
Continued Disparity Across Property Sectors
The increase in total returns this quarter is largely due to improved performance of all property types, including retail and hotel which remained in negative, but less negative territory than prior quarters. Industrial returns of 4.72% were slightly above prior quarter and has led all property types since 2016q1. The second highest total return after industrial was 1.69% for apartments, followed by office, retail and hotel of 0.99%, -0.45% and -1.61%, respectively. Considering the property type sector weights (dollar allocations) and returns, industrial contributed 1.03%, apartments 0.43%, office 0.34%, retail -0.08% and hotel 0.00%, totaling the 1.72% NPI total return
Unleveraged Returns by Property Type
While NCREIF members are long-term investors for most of the funds, there are typically between 100 and 200 sales of properties each quarter. Transactions dropped to 131 from 264 but this is typical of the drop seen in the 1st quarter compared to the fourth quarter and nowhere near the 30 to 49 sales transacted in the 2nd and 3rd quarters of 2020
About the NCREIF Property Index
The NPI consists of 9,442 investment-grade, income-producing properties with a market value of $717 billion. The market value breakdown by property type is about 34% office, 25% apartment, 18% retail, 23% industrial and less than 1% hotel properties.
The NPI includes property data covering over 100 CBSAs. In addition, within each property type, data are further stratified by sub-type. These data enhance the ability of institutional investors to evaluate the risk and return of commercial real estate across the United States.