Real News from RealNex

CRE Markets Continue to Perform Well: Investment Returns Remain Steady

Posted by Jeff Finn on Aug 20, 2018 1:42:45 PM

Top 10 Takeaways from RealNex CRE Market Update

Q2 2018 with Dr. Jeffrey Fisher

On August 16, 2018 RealNex CEO Jeffrey Finn hosted a webinar with their Head of Research and Data Dr. Jeffrey Fisher. The webinar presented key findings and analysis based on the most recent NCREIF research data. NCREIF receives quarterly property performance metrics from over 10,000 properties valued at roughly ½ trillion dollars in Market Value. Please click the links for access to the webinar recording or presentation deck.

Top 10 takeaways…

  1. NAREIT and NCREIF Fund Investment Indexes at 4.9% and 8.4% respectively, both underperformed the S&P, at 14.4% on annual basis. 
  1. NAREIT bounced back from a -6.7% quarterly return in Q1 to a positive 8.5% in Q2 2018.
  1. The NCREIF Property Index has remained fairly stable since mid-2016 in the range of 1.5 - 2.0% per quarter.
  1. CRE Prices reached an historic high. Even with the rate of growth slowing, values have steadily increased since 2010. First led by cap-rate compression, more recently NOI growth is driving gains.
  1. Transaction volume was down in number of transactions, but up in total value, as more higher priced assets trade hands.
  1. Industrial continues to be the top performing property type, with unlevered quarterly returns of just over 3.5%. While retail, making a modest recovery, was the weakest at 1.25%
  1. Capital flows into and out of Funds is at equilibrium after a 7-year period of solid net inflows.
  1. Cap Rates, while flattening, continue to trend down. Industrial remains the highest at 4.6%, with Apartments lowest at 4.1%. These both tightly band the average for all types at 4.4%.
  1. Vacancy Rates are steady at cyclical lows with Retail and Apartments nearly matching the overall rate of 7%, while Industrial is at a low end of the range at 4% and Office at the high end just over 12%.
  1. From an NOI Growth standpoint, the best performing property type in Q2 was Office at 6.6% followed by Apartments and Industrial at 2.2% and Retail at -.7%. Office seems to be reaping the benefit of 7-10 year, recession era leases rolling over.

A Bonus Takeaway…

  • All “Other” property types, including Assisted Living, Independent Living and Self-Storage realized total returns of 12%, above the NCREIF Property Index overall average of 7.2%.

The webinar also featured a series of 5 polls where the audience shared their perspective of the future outlook for commercial property markets.

Poll 1. When will the Market Value Index (MVI) peak for this cycle?

A. Peaked this quarter

6%

B. Before end of 2018

21%

C. 2019

57%

D. 2020 or later

15%

Poll 2. What will be the best performing property sector in 2019?

A. Apartment

10%

B. Hotel

8%

C. Industrial

67%

D. Office

12%

E. Retail

4%

Poll 3. What will cap rates be for the nation by the end of 2018?

A. Below 4%

4%

B. 4% to 5%

39%

C. 5% to 6%

48%

D. Above 6%

9%

Poll 4. Which property type will have the highest NOI growth in 2018?

A. Apartment

30%

B. Industrial

26%

C. Office

43%

D. Retail

0%

Poll 5. What will the annual NPI total return be for 2018? (Current rolling annual return 7.1%)

A. Below 5%

0%

B. 5%-to-7%

48%

C. 7%-to-9%

50%

D. Above 9%

2%

 

Let us know if you agree with the results and outlook!

Remember click the link to download the video and the deck and be sure to join us for the next session. Sign up here to be sure you are on our list.

 

 

 

 

 

 

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