CHICAGO—Returns for the 7,165 income-producing properties in the National Council of Real Estate Investment Fiduciaries' universe were off slightly in the third quarter, continuing a trend seen over the past several months. The NCREIF Property Index (NPI) registered a total return of 1.7% for Q3, off from 1.75% in the previous quarter, 1.77% in the year-ago period and 3.09% two years ago.
In terms of the longer-term outlook, NCREIF says the NPI total return remains “modest” and has been “relatively stable,” ranging between 1.55% and 1.77% over the past five quarters. Q3's total return consisted of a 1.14% income return and 0.56% appreciation. Over the past five quarters, both components of the total return have been relatively stable, with the quarterly income return ranging from 1.14% to 1.16% and appreciation in the 0.4%-to-0.6% range.
For the trailing year, the annual NPI total return was 6.89%, consisting of a 4.66% income return and 2.15% appreciation. For longer-term context, the annualized average total return for the past five years was 10.35% and 6.23% over the past decade.
Faring best in Q3 was industrial, up 22 basis points from Q2 with total returns of 3.29% in Q3 and 12.8% for the trailing year. No other NPI property type comes close, although hotels posted a 54-bp increase to 2.3%, representing a reversal of that sector's six-quarter depreciation trend.
Apartments also posted an improvement in quarterly returns, with a 1.66% total return compared to 1.45% in the prior quarter. However, returns for office, which comprises the largest slice of the NPI pie at 36.8% of the database, declined to 1.4% from 1.58% in Q2. Retail's 32-bp drop to 1.2% made it the quarter's weakest-performing sector.
After rising to a 16-year high of 93.3% last quarter, occupancy for NCREIF-tracked properties held steady in Q3. Quarterly occupancy changes were varied by property type, although across the board year-over-year occupancy remained steady. Industrial's 96.1% occupancy rate is still the highest, and the sector also leads with Y-O-Y growth in NOI at 8.4%. Properties in the Q3 NPI represent $543.5 billion of market value.
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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.
