Record Price Appreciation for Institutional Real Estate
CHICAGO, IL, January 25, 2022 – The National Council of Real Estate Investment Fiduciaries (NCREIF) has released fourth quarter 2021 results for the NCREIF Property Index (NPI). The NPI reflects investment performance for 9,919 commercial properties, totaling $834 billion of market value. The returns are detailed in the attached Snapshot Report.
The quarterly total return was 6.15%, which consisted of 1.03% from income and 5.12% of appreciation. This was the highest appreciation in the history of the NPI which began in the first quarter of 1978. Appreciation is after the deduction of capital expenditures. Market values before considering capital expenditures also increased at a record level of 5.40%.
The 6.15% 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 8.05%. As of quarter-end there were 4,399 properties with leverage and the weighted average loan to value ratio was 44%.
Quarterly NPI Unleveraged Appreciation and Total Returns
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 fourth quarter was 13.34% which was up from 10.92% the prior quarter. Apartment properties had the second highest return at 6.82% although this was only up slightly from 6.53% the prior quarter. Surprisingly, the third best performance was from hotel properties with a fourth quarter return of 4.64% which was up from 1.83% the third quarter. Retail and office returns were 2.18% and 1.68% respectively for the fourth quarter.
Unleveraged Returns by Property Sector
Total Returns for Gateway vs. Non-gateway Cities
The strong performance for the fourth quarter of 2021 was also driven by record returns of non-gateway vs. gateway cities. The so called “gateway cities” are generally considered to be Boston, Chicago, Los Angeles, New York, San Francisco, and DC. Perhaps due to COVID causing migration to less dense urban areas, the non-gateway cities have increased relative to the gateway cities and reached a record level in the history of the NPI this quarter with a 7.36% quarterly total return.
While NCREIF members are primarily long-term investors, there are typically between 100 and 200 sales of properties each quarter. Sales amounted to 284 this quarter, up from 228 the prior quarter and only 30 during the 2nd quarter of 2020 during the midst of COVID. Transactions are usually high when the market is strong and there is a lot of liquidity in the private real estate market.
About the NCREIF Property Index
The NPI consists of 9,919 investment-grade, income-producing properties with a market value of $834 billion. The market value breakdown by property type is about 30% office, 27% apartment, 15% retail, 28% 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.