CHICAGO—Industrial assets among the 7,527 commercial properties indexed by the National Council of Real Estate Investment Fiduciaries posted the highest returns in the fourth quarter, NCREIF said Thursday afternoon. The sector's leading status carries over to 12-month results, for which industrial was the only property type in the NCREIF Property Index (NPI) to post double-digit returns.
For Q4 2017, industrial's return was 3.28%, or 13.07% on an annualized basis. For comparison, the quarter's second-best performer among property types, office, posted a total return of 1.65% in Q4 and 6% over the preceding 12 months. Apartments came in third with a 1.62% return in Q4 and 6.2% on an annual basis.
NCREIF attributes industrial's strong showing to the demand for warehouse space needed for online retailers like Amazon. That may also explain why industrial properties in the NPI posted the quarter's highest occupancy rate at 96.37%, up 27 basis points from Q3. Occupancies overall for the NPI were at a 16-year high in Q4 at 93.6%.
Although the quarterly NPI total return continues to trend below the five-year average, Q4 returns were the best of the past year. The total return was 1.8% in Q4, up from 1.70% in Q3 and higher than the year-ago level of 1.73%. Both the income and appreciation components of the total return were up slightly from Q3, but NCREIF notes that the two components have been relatively stable over the past four quarters.
For '17 on the whole, the total return was just under 7%, NCREIF says. That's down from the five-year annualized average of 10.3%, just as the quarterly returns for the past year have been off from the five-year quarterly average of 2.48%. However, NCREIF notes that “the downward drop in returns that we witnessed for several years came to a halt this past year with the stabilization of returns.”
The quarter saw $11.5 billion of properties in the NPI change hands; NCREIF notes that transaction volume continues to be above average. The NPI represents primarily institutional commercial property holdings, with a combined market value of $559.8 billion as of Q4.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
