The latest results from the consensus forecast survey of the Pension Real Estate Association (PREA) show members continue to expect moderating returns growth on commercial real estate assets. However, the numbers ticked up slightly compared to the second quarter forecast. In the latest reading, respondents forecast that the NCREIF national all-property types index growth (NPI) will slow from 6.5 percent in 2019 to 5.3 percent next year and 4.5 percent in 2021. Those numbers are all up from the last index released in July showing growth of 6.3 percent in 2019, 4.9 percent in 2020 and 4.2 percent in 2021.
Returns growth in the industrial sector will likely show the greatest drop over the next two years, from 11.7 percent this year to 6.1 percent in 2021, according to the survey. Growth in the apartment sector, another property type currently popular with investors, is expected to moderate at a slower pace—from 6.0 percent in 2019 to 5.4 percent next year and 4.6 percent in 2021. Returns growth on office investments will likely slow down as well, PREA members say—from 6.3 percent this year to 4.0 percent in 2021.
Retail is the one commercial property type tracked by the survey that is expected to see returns growth accelerate over the next two years—from 2.8 percent in 2019 to 3.3 percent in 2020 and 3.6 percent in 2021.
PREA survey respondents anticipate that while income returns growth on all four main property types will stay largely stable from 2019 to 2021, growth in appreciation returns will moderate noticeably. Both office and retail properties are expected to see negative growth in appreciation returns by 2021, at -1.3 percent and -0.5 percent respectively. Growth in appreciation returns on industrial properties is forecast to fall to 1.4 percent by that time period (from 6.9 percent in 2019) and growth in appreciation returns on apartment properties will be at just 0.3 percent (from 1.8 percent in 2019).
Twenty-six firms, including investment managers, advisors and researchers, participated in the third quarter survey.