Friday Market Insight :: Real Estate Rules


FMIThe National Council of Real Estate Investment Fiduciaries (NCREIF) held its fourth quarter conference call yesterday, presenting an array of charts, graphs and analysis indicating that commercial real estate continues to perform well as an asset class. The NCREIF Property Index, which tracks assets held in a fiduciary environment (primarily for pension funds), posted an unleveraged return of 10.5% in 2012. The index performed well over the past 10 years, returning an annual average of 8.4%. When the leverage on these properties is included, the returns jump to 16.6% in 2012 and 12.1% annually over the past 10 years. REITs have performed even better with the NAREIT Equity REIT index posting an eye-popping 19.7% return in 2012 and a 10-year average return of 11.8%.

Although the S&P 500 performed well last year, clocking a return of 16.0%, real estate, both owned and securitized, beat the 10-year returns available from both stocks and bonds.

Retail property posted the strongest return in 2012, barely ahead of apartments, despite the fact that shopping center leasing fundamentals have not improved much. This likely reflects the concentration of institutionally held Class A properties in the NCREIF database – the best assets in the strongest markets – which have done quite well despite the lag in overall market fundamentals. Industrial also did well in 2012, followed by office and hotels. In all cases, the best properties in the strongest markets beat the averages. The West led all regions last year followed by the South, Midwest and East, although data presented by Bob White, president of Real Capital Analytics, showed a remarkable one-year increase of 25% for his firm’s Manhattan price index.

Looking ahead, listeners on the call were asked when they thought the NPI Price Index would return to its pre-recession peak, and the most popular response was 2015 – a vote of confidence in the sustained recovery of leasing markets and the potential for continued, modest tightening in cap rates.

Have a great weekend.

Best regard,

Robert Bach  National Director, Market Analytics  312.698.6754  rbach@ngkf.com

About Nancy Delgadillo

Nancy is a member of the Newmark Grubb Knight Frank Private Capital Markets Group, specializing in retail, hospitality and office investment sales.
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