The US commercial real estate sector continued its slow and steady recovery into the end of 2012 according to the latest information from the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index for Q4 2012.
The NPI, which is based on approximately $320 billion worth of institutional commercial real estate investments, found that the total return of commercial real estate investments in the US in Q4 was 2.54%. This is a slight increase on the 2.34% recorded in Q3, but down considerably on the 2.96% recorded in Q4 2011. However, the figure is staying above the long-run average of 2.2% and the ten-year average of 2.1%. The Q4 2012 figure was made up of a 1.41% income return and a 1.13% capital appreciation return. Over the past four quarters, the NPI returned 10.54%, split between 5.84% income and 4.51% appreciation.
According to the index, retail was the best performing sector in the Q4 recovery, returning 2.97% on the quarter. With annual returns of 11.61% retail was also the best performing over the year as well, although the apartment sector wasn't far behind with a return of 11.23% over the year. The office sector performed worst on a quarterly basis with a total return of 2.17%. Meanwhile the hotel sector performed worst for the year, managing just an 8.23% return.
Core institutional real estate investment returns have a reputation for stability and 2012 reinforced that reputation in an almost boring fashion, says Ron Kaiser, chairman of the board at NCREIF. Not only have quarterly total returns again come in at the 2.5% level, but all property types and nearly all geographic regions report similar numbers. Basically, this reflects the continued funnelling of investment capital to institutional real estate in nearly every part of the country, he said.