NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT MANAGERS
16
Exhibit II shows the returns over the history of the
NCREIF Property Index (NPI). These are unleveraged
returns displayed on a four quarter moving total
basis. While returns have been moderating over the
past 6 quarters, we see that they are still slightly
above their long term historical average.
Exhibit II: Returns (unleveraged) for
Institutional Real Estate
The strong double digit growth annual returns
we have had in recent years has been due to a
combination of improving fundamentals (higher
occupancy and NOI growth) as well as declining cap
rates due in part to lower interest rates. Rent and
NOI growth continue to be strong and occupancy
at or near historical highs. Returns have only
moderated due to a leveling of cap rates.
The lower price appreciation over the past 5
quarters means that an increasing proportion of the
return is due to income. The income return has not
dropped as NOI growth remains strong and cap
rates have leveled off. It has been pointed out that
the income portion of returns also tends to increase
as we approach a recession because cap rates
begin to increase with less expected appreciation in
values and interest rates are often increasing. This
prompted us to look at the proportion of income
return to total return preceding past recessions.
Exhibit III shows the results. Whereas the income
portion of the return has increased slightly in recent
quarters, it is nowhere near the danger zone that we
observed prior to past recessions.
Exhibit IV: NCREIF Returns vs. GNP
Exhibit II: Returns (unleveraged) for Institutional Real Estate
