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Growth in Total Returns on CRE Investment Will Decelerate Over the Next Two Years, PREA Survey Respondents Predict

PREA’s third quarter consensus forecast survey shows investors expect total return growth on all commercial property types to slow between 2018 and 2010.

Real estate investment managers and advisors expect total returns growth on all commercial property types to slow from a projected 6.6 percent on the NCREIF Property Index (NPI) in 2018 to 4.6 percent by 2020, the third quarter consensus forecast survey from the Pension Real Estate Association (PREA) shows. On an annual basis, investment returns on all property types should deliver an average return of 5.4 percent between 2018 and 2020, respondents to the survey indicated.

Industrial assets are likely to experience the greatest deceleration in total returns growth over the period, moving from 11.0 percent in 2018 to 6.0 percent by 2020. Returns on retail properties are expected to move the least, going from 4.6 percent in 2018 to 4.3 percent in 2020.

A further breakdown shows that while industrial properties are expected to deliver roughly the same returns on income (moving from 5.1 percent to 5.2 percent by 2020), respondents anticipate a steep decline in the pace of appreciation growth over the period. Growth in appreciation will likely decline from 5.8 percent this year to 0.9 percent in 2020, they indicated.

Retail assets will also continue to post stable returns on income, according to PREA survey respondents, who expect those returns to move from 4.8 percent in 2018 to 4.9 percent in 2020. However, retail will likely experience a decline in appreciation over the period, from -0.2 percent this year to -0.7 percent in 2020. The only other core property sector expected to show a decline in appreciation during that time is office, with respondents indicating it will likely move from 1.6 percent to -0.1 percent by 2020.

PREA administered the survey in August 2018. Twenty-four firms participated in the survey.

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