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Research and insights > Fourth quarter private real estate returns move negative
Macro and capital markets, Real estate performance, Research, Sector outlooks

Fourth quarter private real estate returns move negative

April 3, 2023
  • US private real estate returns went negative in Q4 2022 as the impact of higher interest rates continued to ripple through to market pricing and appraised values. This trend is expected to continue through the first half of 2023 with stability projected to return later in the year.

    Returns in the fourth quarter showed negative appreciation and income returns in line with previous quarters, resulting in negative total returns for both the NPI and ODCE. The slowdown in returns was most significant for industrial, with retail delivering the highest returns of the major sectors (this is a notable shift from trends of the last 5+ years). Looking ahead, the dominant theme in sector performance is expected to be the under-performance of offices.

    This note provides details on the fourth quarter performance of the NPI and ODCE indices, summarizes the outlook for future returns, and provides some information regarding insights from the first release of data related to the new NCREIF subtypes.

    Highlights from the Q4 data releases include:

    • The quarterly total NPI return declined 410 bps from Q3 to -3.5%. The Q4 return comprised a 0.95% income return and -4.45% appreciation return.
    • The trailing-year return declined more than 1,000 bps quarter-over-quarter to 5.53%.
    • Returns for all property types were down from the previous quarter and in negative territory, with industrial seeing the greatest decline for the second consecutive quarter. Retail was the highest-returning property type for the first time since Q1 2016.
    • The ODCE value-weighted quarterly gross total return of -4.97% was down 440 bps from the third quarter. Appreciation remained negative at an index level and the income return was flat at 0.80%, an all-time low. Mark to market on leverage was a positive as interest rates rose, but negative appreciation caused leverage to be an overall negative to returns.

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