Institutional Real Estate Returns Highest in 15 years
CHICAGO, IL, October 25, 2021 – The National Council of Real Estate Investment Fiduciaries (NCREIF) has released third quarter 2021 results for the NCREIF Property Index (NPI). The NPI reflects investment performance for 9,703 commercial properties, totaling $785 billion of market value. The returns are detailed in the attached Snapshot Report.
The quarterly total return was 5.23%, up from 3.59% in the prior quarter. This is the highest return since the 4th quarter of 2005 when the return was 5.48%. 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 quarterly return of 6.95%. As of quarter-end there were 4,126 properties with leverage and the weighted average loan to value ratio was 45%.
NPI Unleveraged Total Quarterly Returns
The total return of 5.23% for the quarter consisted of 1.05% of income and 4.18% of appreciation. Appreciation is after the deduction of capital expenditures. The market values increased by 4.44% this quarter before any deduction for capital expenditures, setting a record high in the level of the index since inception in 1978.
NCREIF Market Value Index
All Property Sectors Improved
All property sectors improved this quarter compared to the prior quarter. Industrial (primarily warehouse) properties continued to lead with an astounding quarterly return of 10.92%. Apartment returns followed with a quarterly return of 6.53%. Returns for office, hotel and retail were 1.87%, 1.83% and 1.55% respectively.
Unleveraged Returns by Property Sector
While NCREIF members are primarily long-term investors, there are typically between 100 and 200 sales of properties each quarter. Sales amounted to 228 this quarter, up from 150 the prior quarter and only 30 during the 2nd quarter of 2020 during the midst of COVID.
About the NCREIF Property Index
The NPI consists of 9,703 investment-grade, income-producing properties with a market value of $785 billion. The market value breakdown by property type is about 32% office, 26% apartment, 16% retail, 26% 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.