Strong Performance Continues for Institutional Real Estate
CHICAGO, IL, April 25, 2022 – The National Council of Real Estate Investment Fiduciaries (NCREIF) has released first quarter 2022 results for the NCREIF Property Index (NPI). The NPI reflects investment performance for over 10,000 commercial properties, totaling $897 billion of market value. The returns are detailed in the attached Snapshot Report.
The quarterly total return was 5.33%. The rolling annual return for the past four quarters was 21.87% which is the highest since the first quarter of 1980 and the second highest in the 44-year history of the NPI.
Rolling Four Quarter Unleveraged NPI Returns
The quarterly return of 5.33% consisted of 0.99% from income and 4.34% from appreciation. Appreciation is after the deduction of capital expenditures. Market values before considering capital expenditures increased by 4.49%.
NCREIF Market Value Index
The 5.33% return is the unleveraged returns for what is primarily “core” real estate held by institutional investors throughout the U.S. Properties with debt financing had a leveraged total quarterly return of 6.59%. As of quarter-end there were 4,374 properties with leverage and the weighted average loan to value ratio was 43%.
Industrial Sector Continues to Propel Entire Index
The story continues to be the exceptionally strong performance of the industrial (primarily warehouse) sector. The total return for the first quarter was 10.96% which was down from 13.34% the prior quarter but still the highest of any property sector. Apartment properties had the second highest return at 5.25%. Surprisingly, the third best performance was from retail properties with a first quarter return of 2.26%. Hotel and office returns were 1.76% and 1.60% respectively for the first quarter.
Unleveraged Total Returns by Property Sector
Market value weighted capitalization rates dropped from 3.83% during the fourth quarter to 3.71% for the first quarter of 2022 despite rising interest rates. This suggests that for the portfolio of NCREIF properties, investors are willing to buy at a 3.71% current yield. This would translate to a price-earnings ratio of 26.95 and suggests that investors expect some growth in the price of institutional grade commercial real estate. The average market value weighted cap rate over the history of the NPI is 6.59% which implies a PE ratio of 15.18. The PE ratio for the S&P 500 as of April 25th is 21.33 compared to the end of quarter NPI PE of 26.95.
About the NCREIF Property Index
The NPI consists of 10,137 investment-grade, income-producing properties with a market value of $897 billion. The market value breakdown by property type is about 28% office, 27% apartment, 15% retail, 30% industrial and less than 1% hotel properties. Not surprising, the greatest increase has been the allocation to industrial properties in recent years. 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.