The industrial property sector is expected to vastly outperform the other core commercial property types over the next four years, according to the latest consensus forecast survey from the Pension Real Estate Association (PREA).
In its report for the fourth quarter of 2020, PREA members indicated that they expect the NCREIF All-Property Index total returns to grow 5.1 percent annually from this year through 2024. That will start with eking out total returns growth of 0.1 percent this year. (That outlook is a vast improvement from the previous PREA member forecast in September.) Industrial is the only core sector expected to exceed that figure to reach annual total returns growth of 8.2 percent over the same period.
Total NCREIF returns for industrial properties in 2020 will reach an average of 7.6 percent, according to PREA survey respondents. They expect the figure to rise to 7.8 percent next year and 9.3 percent in 2022.
The multifamily sector is expected to be the second strongest after industrial in the next few years, with projected total returns growth of 5.8 percent annually between now and 2024. In 2020, however, multifamily properties forecasted returns will rise 1.0 percent, with the figure rising to 5.3 percent next year and 7.1 percent in 2022.
PREA respondents expect returns on office properties to drop 1.0 percent this year. However, they also forecast a return to positive 1.0 percent growth in 2021 and 6.3 percent growth in 2022. The average NCREIF returns growth for office properties between now and 2024 is expected to reach 4.2 percent annually.
Unsurprisingly, retail properties are expected to bear the brunt of pandemic-related setbacks, with survey respondents estimating that total returns on retail properties will fall by 9.4 percent this year and by 1.0 percent in 2021. The retail sector is expected to return to positive growth territory in 2022, with growth of 5.0 percent.
Most of these dynamics will be driven by appreciation returns, according to the PREA survey. While all four core property types are expected to maintain positive income returns between now and 2024, growth in appreciation returns is forecast to decline in every sector except industrial. Retail properties will likely experience the steepest decline, with 13.6 percent in 2020 and 5.8 percent in 2021, before returning to growth of just 0.1 percent in 2022, according to PREA respondents. Appreciation returns on office properties are expected to fall by 5.4 percent this year and 3.6 percent the next, while the multifamily sector is likely facing a 3.1 percent decline in appreciation returns in 2020 before coming back into positive territory in 2021.
Industrial properties, on the other hand, are forecast to experience appreciation returns growth of 3.1 percent in 2020, 3.3 percent in 2021 and 4.8 percent in 2022.
The survey, which was administered in November, included responses from 25 PREA member firms, including investment management, advisory and research companies.