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NCREIF Property Index down from third quarter 2018
Research - JANUARY 29, 2019

NCREIF Property Index down from third quarter 2018

by Jody Barhanovich

The National Council of Real Estate Investment Fiduciaries (NCREIF) has released fourth quarter 2018 results for the NCREIF Property Index (NPI). The NPI reflects investment performance for 7,883 commercial properties, totaling $612 billion of market value.

The total return was 1.37 percent in the fourth quarter, down from 1.67 percent last quarter. This is an unleveraged return for what is primarily “core” real estate held by institutional investors throughout the United States.

The average quarterly return over the past five years was 2.28 percent or 9.85 percent annualized. Although the current quarter’s return of 1.37 percent or 5.61 percent annualized is down from the torrid pace during the previous five years, the capital return was still slightly positive at 0.26 percent.

The positive capital return indicates that on average, properties in the NPI are still increasing in value after deducting capital expenditures that have been added. By property type, industrial properties, which are primarily warehouse, continue to be the stellar performer with a return of 3.40 percent for the quarter, which was up from the prior quarter return of 3.36 percent. Office followed with a return of 1.65 percent, followed by apartment at 1.35 percent, hotel at 1.21 percent and retail, the continuing laggard, had a negative 0.43 percent return for the quarter. This is the first quarter a negative return has been recorded since the fourth quarter of 2009.

In addition, vacancy and cap rates were at historic lows. Occupancy for NCREIF-tracked properties was at 94.0 percent, down slightly from the occupancy last quarter of 94.17 percent, which was the highest since the fourth quarter of 2000. Cap rates edged up very slightly to 4.81 percent from 4.79 percent last quarter despite the rising interest rate environment.

NOI grew at 1.4 percent for the quarter after declining by about 0.8 percent last quarter. Rent also grew at 1.5 percent for the quarter, which was up from about 0.7 percent last quarter.

 

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