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PREA Consensus Survey Predicts a Dismal Year in NCREIF Returns

The retail property index is expected to drop 11.4 percent and not return to positive territory until 2022.

The third quarter of 2020 consensus survey forecast from the Pension Real Estate Association shows pension fund investors expect the overall NCREIF Property Index of total returns (NPI) to decline by 2.7 percent in 2020. However, PREA survey responders forecast the NPI will rebound to grow by 2.5 percent next year and rise by 7.3 percent in 2022.

As could be expected, PREA members foresee retail properties taking the most severe beating from the pandemic and related shutdowns, with NPI including income declining by 11.4 percent this year and 1.1 percent in 2021. They predict the sector won’t start to rebound until 2022, when NPI growth might reach 5.8 percent.

The forecast also shows the office sector seeing NPI growth plunge into negative territory this year, at -2.6 percent. However, PREA survey respondents indicated they see growth returning next year at 1.0 percent and moving to 7.0 percent in 2022.

Likewise, NPI on apartment properties is forecast to decline by 0.9 percent in 2020 before returning to 4.9 percent in 2021 and 7.9 percent in 2022.

The industrial sector is the only core commercial real estate sector expected to post growth in total returns this year, at 3.5 percent, followed by 6.2 percent next year and 8.9 percent in 2022.

Most of the decline in total NPI will likely come from a plunge in appreciation returns, while income returns should still stay in the positive territory for all property types this year, according to the PREA forecast. On the other hand, appreciation returns for retail properties are expected to plunge by 15.5 percent this year and not return to growth mode until 2022. Appreciation returns for office properties will likely decline by 6.8 percent in 2020, and for apartment properties by 4.9 percent.

Even the still in-demand industrial properties will see a decline in appreciation returns of 0.8 percent in 2020, PREA members estimate, before posting a gain in 2021.

PREA conducted its quarterly survey in August of 2020. The results include responses from 21 member firms specializing in investment management, advisory and research services.

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