The Last Time CRE Returns Were This Negative It Was the GFC

Overall CRE returns declined by 3.5% in the last quarter of 2022, taking them into negative territory for the first time since the onset of the pandemic. 

SitusAMC’s Val Trends Report for Q4 2022 revealed that NCREIF Property Index overall CRE total returns fell by over 400 bps. Total returns were the lowest since the global financial crisis, as was capital appreciation. Income returns were the second lowest in history, just 2 bp above the previous quarter’s record low. One-year trailing total returns were 5.5%, down over 10.5 percentage points quarter-on-quarter and about 370 bps below the long-term average (LTA). 

Increasing almost 70 bps, hotel was the only property segment with positive returns in Q4. Hotel’s quarterly return was the highest in one year and nearly 210 bps higher than the LTA. One-year trailing returns were about 10%, about 425 bps higher than the LTA. 

Apartment returns, meanwhile, fell by over 440 bps in Q4, turning negative for the first time since the second quarter of 2020, according to NCREIF. Returns were the lowest since the height of the GFC. One-year trailing returns topped 7%, about 160 bps higher than pre-pandemic levels, but 220 bps below the LTA. All apartment subtypes had negative returns in Q4 with high-rise apartments performing the worst. 

Industrial returns plunged almost 470 bps to -3.6% in Q4, the first quarter of negative returns for the segment since the global financial crisis. All industrial subtype returns were negative, except for manufacturing; warehouse and R&D were the worst performing major subtypes. The industrial segment produced a one-year trailing return of 14.6%, far below the records seen over the past two years, but still 220 bps above the LTA. The one-year trailing return will continue to slow as we move away from the strong quarters of late 2021 and early 2022. 

Retail returns declined by 200 bps quarter on quarter to -1.6%, negative for the first time in two years and the lowest since Q2 2020. One-year trailing returns were 2.7%, over six percentage points below the LTA. All retail subtypes were negative in the fourth quarter; fashion/specialty was the highest performing segment and regional malls performed the worst. 

Office was the poorest performing segment in Q4. At -4.8%, office returns were the lowest since Q2 2009, dropping over 400 bps since the third quarter of 2022. One-year trailing returns were -3.4%, also the lowest since the GFC. Suburban office outperformed CBD office as it has since the beginning of the pandemic, but both subtypes had the lowest returns since the GFC.