New NCREIF Office Subcategories Aid Sector Analysis
Each subset has its own unique value peaks and declines.
New office subcategories incorporated into the National Council of Real Estate Investment Fiduciaries (NCREIF) property index will give investors better visibility into long-term trends that impact portfolio construction and risk/return tradeoffs, said Aaron Jodka, director of U.S. capital markets research at Colliers, in an analysis.
NCREIF expanded its property index within its Q1 data release to capture different pricing experiences within diverse categories.
“Determining office values can be challenging today,” said Jodka. “ Some assets are trading at significant discounts to their last sales price, but these properties generally have lower occupancy. A disparity remains between major price indices from CoStar, Green Street, MSCI, NAREIT, and NCREIF.”
NCREIF’s new office sector categories include central business district (CBD), secondary business district, suburban, urban, life science and medical office. While values fell across all subsets during the first quarter, the new segmentation highlighted an accelerated decline in the life sciences market while declines in other markets were less severe than during the most recent quarters.
Each subset has its own unique value peaks and declines. For example, CBD office has been hit the hardest, with values down 40%. Meanwhile, medical office has experienced a 12% price decline, with values growing nine full quarters longer than those of CBD properties. This analysis looks at the peak-to-current value change, and most investors did not buy at the peak, said Jodka.
The start of the pandemic is a useful demarcation event to demonstrate the performance of the office subsets. CBD office peaked in the first quarter of 2020 Q1. Life science values are still up 17%, while medical office values are down just 2%. The other sets show a similar performance of declines between 25% and 31%.