Commercial Real Estate Returns Drop to Financial Crisis Level – The Property Chronicle
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Commercial Real Estate Returns Drop to Financial Crisis Level

The Professor

The National Council of Real Estate Investment Fiduciaries (NCREIF) tracks the performance of over a half trillion dollars of commercial real estate in the US.  Because the properties are marked to market every quarter for financial reporting, NCREIF can provide quarterly returns as a benchmark for institutional investors as well as other trends from the database.  The total return was 0.71% in the first quarter which was a decrease from the 1.55% return for the prior quarter.  This is the lowest return since the fourth quarter of 2009 which was the midst of the financial crisis that lead to the Great Recession.  This is an unleveraged return for what is primarily “core” real estate held by institutional investors throughout the US and includes apartment, hotel, industrial, office and retail property sectors. (The industrial sector is primarily warehouse properties.) 

NPI Total Returns Since Great Recession

The total return of 0.71% consisted of an income return of 1.10% from net operating income (NOI) and a capital return (change in value net of capital expenditures) of -0.39%.  This is the first negative capital return since the 1stquarter of 2010. That said, returns were considerably lower during the height of the financial crisis as seen at the start of the chart in 2009.

Market Values Peaked

The NCREIF Market Value Index (MVI) tracks how estimated sale prices are changing over time for properties in the NCREIF Property Index.  Market values had been rising steadily since the recovery from the Great Recession began in 2010.  But this quarter the index flattened if measured on an equal weighted basis and declined slightly if shown on a value weighted basis as shown in the exhibit.

NCREIF Market Value Index

Returns Drop for all Sectors

The Professor

About Jeffrey D. Fisher

Jeffrey D. Fisher

Jeffrey D. Fisher, Ph.D. Professor Emeritus of Real Estate at the Indiana University, Visiting Professor at Johns Hopkins University and president of the Homer Hoyt Institute. He is also the Research and Educational Consultant to the National Council of Real Estate Investment Fiduciaries (NCREIF) and Chief Data Officer for RealNex. He is a coauthor of Real Estate Finance and Investments published by McGraw-Hill and now in its 16th edition and used by universities throughout the world in different languages.

Articles by Jeffrey D. Fisher

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