NCREIF Fourth Quarter 2018 Update

Wednesday, February 6, 2019

HFF Research discusses the NCREIF Property Index’s (NPI) recently released fourth quarter 2018 results, which reflects trends in institutional investor ownership of U.S. commercial real estate assets. We consider the total 2018 NPI return along with the return’s composition. Further, we delve into property specific relative returns, including a look at the “tale of two sectors:” retail and industrial.

The National Council of Real Estate Investment Fiduciaries (NCREIF) has released fourth quarter 2018 results for the NCREIF Property Index (NPI), reflecting trends in institutional investor ownership of U.S. commercial real estate assets.

The NPI reflects investment performance for 7,883 commercial properties totaling approximately $611 billion of market value, with AUM rising 9.27 percent over the past year and 83.75 percent since prior peak in the second quarter 2008.

The quarterly NPI total return remains modest, with returns for the fourth quarter of 2018 42 bps lower than the fourth quarter of 2017. The total return was 1.37 percent in the fourth quarter, down slightly from 1.67 percent last quarter. For 2018, the total return was around 6.72 percent – a slight decline from 2017 which came in at 6.96 percent. This is an unleveraged return for what is primarily “core” real estate held by institutional investors throughout the U.S.

For the trailing year, the annual NPI total return registered 6.72 percent. Sixty-eight percent of this was due to income return, which has ticked up as a percentage of total return in recent years. The average since 2010 being 53 percent. The balance of the total return was due to capital appreciation. For longer-term context, the annualized average total return for the past five years was 9.33 and 7.49 percent over the past decade.

Industrial properties, which are primarily warehouse, continue to be the stellar performer with a return of 3.40 percent for the quarter. In second was office at 1.65 percent followed by multi-family, seniors housing and hotel at 1.35, 1.28 and 1.2 percent, respectively. Retail lost ground again this quarter, coming in at -0.43 percent. It is worth noting for retail that the income return was positive at 1.16 percent. It was due to retail’s appreciation return that the total return was negative. The spread between industrial and retail returns is a “tale of two sectors” with online shopping creating increased demand for last mile warehouse space and hurting many traditional retailers.


NCREIF Returns Vs. Competitive Asset Classes


Return Performance Drives Demand For CRE

In spite of lagging returns earned by equities, private commercial real estate has provided better risk-adjusted returns for investors over longer hold periods. Institutional and HNW allocations to real assets are thus increasing, having double over 10 years. Rising allocations of new capital will, over time, increase capital flows into the asset class, reducing historical price volatility and supporting valuations.


Higher Risk-Adjusted Returns For Core Retail and Industrial Assets



Tide Turns in Favor of Industrial



Capital Appreciation Expanding Once More, Healthy Composition





Multi-housing – Total Returns By Hold Period



Industrial – Total Returns By Hold Period



Office – Total Returns By Hold Period



Retail – Total Returns By Hold Period



Sources: HFF Research, National Council of Real Estate Investment Fiduciaries, Dow Jones Corporate Bond Index, Bloomberg Commodity Index, Dow Jones CBOT Treasury Index, FTSE NAREIT Total Return Index

Prepared by HFF Research Analysts Laura Bancroft and HFF Managing Director of Research Jimmy Hinton

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