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Industrial properties yield solid 2017 returns

Driven by an insatiable need for warehouse space by Amazon and other online retailers, industrial properties were far and away the top performer for companies last year, according to the National Council of Real Estate Investment Fiduciaries (NCREIF).

Industrial properties yielded a total return of 3.28 percent in the fourth quarter, or an annualized return of 13.1 percent. Other major assets lagged well behind, with fourth-quarter returns for hotels at 0.96 percent, apartments at 1.62 percent, office at 1.65 percent and retail at 1.27 percent.

Commercial building(1)Overall, investment-grade commercial property yielded solid, if not spectacular, returns for investors in 2017, NCREIF reported.

For 2017, the total return for unleveraged properties was just less than 7 percent, which is down from the average of 10.3 percent over the past five years.

In this still low interest rate environment, leverage continues to be a winning strategy.

Leveraged properties yielded a return of 2.3 percent in the fourth quarter, or an annualized return of 9.4 percent, NCREIF reported. The average leverage on a property was 41 percent of its value, and the interest rates averaged just under 4 percent.

The fourth-quarter return for unleveraged properties, at 1.8 percent, was the highest of the year and was slightly above the return for the fourth quarter of 2016.

NCREIF noted that the fourth-quarter performance was down from “torrid pace” of the past five years, but the trend of dropping returns stopped in the quarter.

Real estate fundamentals also continue to be impressive. Occupancy for NCREIF-tracked properties rose to a 16-year high, at 93.6 percent.

Transaction volume for tracked properties totaled $11.5 billion in the fourth quarter of 2017, with 228 properties sold. NCREIF said this remains above-average transaction activity.

NCREIF’s index reflects investment performance for 7,527 commercial properties, totaling $559.8 billion of market value.


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