CRE Returns Down Slightly but Market Values Reach Another New High
CHICAGO, IL, October 25, 2019 – The National Council of Real Estate Investment Fiduciaries (NCREIF) has released third quarter 2019 results for the NCREIF Property Index (NPI). The NPI reflects investment performance for 8,293 commercial properties, totaling $651 billion of market value. The returns are detailed in the attached Snapshot Report.
The total return was 1.41% in the third quarter, down slightly from 1.51% last quarter. The return for this quarter was slightly below the average quarterly return over the past four quarters which was 1.53% or 6.25% annualized. This is an unleveraged return for what is primarily “core” real estate held by institutional investors throughout the US.
NPI Total Returns
The total return of 1.41% consisted of an income return of 1.11% from NOI and a capital return of 0.30%.
Market Value Index Reaches Another New High
Although returns were down slightly for the quarter, market values reached another new high as indicated by the NCREIF Market Value Index (MVI). The MVI tracks how estimated sale prices are changing over time for properties in the NCREIF Property Index. Market values have been rising steadily since the recovery from the great recession began in 2010.
All Property Types have Positive Returns for Quarter
Returns for retail properties reversed course from last quarter and managed to have a positive return of 0.22% compared to -0.11% last quarter. Hotel returns were also up for the quarter, increasing from 1.09% to 1.77%. Returns for the remaining property types in the NPI decreased slightly for the quarter but remained in positive territory. Industrial properties continued to have the highest return of all property types at 3.16% although down from 3.42% last quarter. Apartment returns were next at 1.18% versus 1.42% the prior quarter and finally, office returns dropped to 1.45% from 1.66% last quarter.
NPI Total Returns by Property Type
Cap Rates Continue at Historic Lows While Occupancy Remains High
Equal weighted cap rates edged down slightly for the quarter from 4.81% to 4.73%. The historical low for the NCREIF data was reached the first quarter of this year at 4.69%. More relevant to the pricing of the NPI properties, the value weighted cap rate dropped to 4.32% from 4.37% last quarter which helped with the increase in market values.
Occupancy was to 94.25% which is not significantly different from the 94.32% occupancy last quarter. This continues to be near all-time highs for the occupancy level in the history of the NPI.