NCREIF, a leading real estate research firm, recently released its Third Quarter 2016 NCREIF Indices Review, a report that details the performance of various commercial real estate assets. Quarterly returns continued on a downward trend that began in 2015 (see charts below) and are now below their 20-year average. Twelve-month returns for office properties at the end of Q3 2016 were lower than the previous four periods ending in Q3. The price appreciation portion of commercial real estate returns declined throughout the first nine months of 2016. According to an investor survey by Pension Real Estate Association, many strategists believe this decline in prices is signaling future returns for commercial real estate assets will be lower than historical averages (5.5%‒6.5% vs. 7.5%–8.5%, respectively).
Boyd Watterson's real estate strategy focuses primarily on income generation and less on price appreciation. We believe that with the right tenant and lease mix our strategy will produce a competitive income stream, even as commercial real estate returns decline.