Industrial Sees Highest Q1 Return in IPD U.S. Property Index

The results for all property types tracked by the IPD U.S. Quarterly Property Index for the first quarter of 2015 are in.
The IPD U.S. Quarterly Property Index measures ungeared total returns to directly held standing property investments from one open market valuation to the next and in Q1 2015 returned 3.1 percent.

The IPD U.S. Quarterly Property Index
measures ungeared total returns to directly held
standing property investments from one open
market valuation to the next and in Q1 2015
returned 3.1 percent.

The total returns for all property types tracked by the IPD U.S. Quarterly Property Index for the first quarter of 2015 was 3.1 percent, a slight increase from the last quarter of 2014 and a sign of steady improvement.

The return was 3.0 percent in Q4 2014 and 2.8 percent in Q3 2014, according to information supplied by MSCI, a New York-based provider of investment decision support tools, including indices with approximately $8 trillion benchmarked to them around the world.

“They are all within a similar range, within a basis point of each other,” said Ken Greguski, executive director & head of U.S. Client Services at MSCI. “This market has been performing particularly well.”

The IPD U.S. Quarterly Property Index measures ungeared total returns to directly held standing property investments from one open market valuation to the next. The index tracks the performance of 4,176 property investments with a total capital value of $238 billion as of March.

Firms contributing data were: AEW Capital Management, Agellan Capital, American Core Realty, ASB, Bentall Kennedy, BlackRock, Boston Properties, CBRE, Clarion Partners, Cornerstone, Harrison Street, Heitman, Invesco Real Estate, Jamestown, JP Morgan, LaSalle, Manulife, MetLife, Morgan Stanley, PNC, Principal Real Estate, Prologis, Prudential Real Estate, RREEF, Sentinel, Stockbridge, Sun Life Financial, TIAA-CREF and UBS.

The assets are in private placement funds owned by institutional investors that are held for at least a year. The number of overall property funds tracked by the index was 40. It also received data from 29 retail funds, 36 office funds, 34 industrial funds, 30 residential funds and 25 funds classified as other that could include investments in assets like hotels and self-storage properties.

“These results are consistently delivering a really good income stream and are reflective of the institutional quality of the assets,” Greguski told Commercial Property Executive.

The index also stated that the annualized total return for all property types over a one-year period was 12.2 percent; 11.3 percent over three years and 13 percent over a five-year period.

By comparison, the total return for the first quarter for equities was 1.4 percent; 3.9 percent for REITs and 2.5 percent for bonds. For the equities annualized total return over a one-year period was 12.8 percent; 16.2 percent over a three-year period and 14.6 percent over a five-year period. REITs saw a 23.0 percent one-year annualized total return followed by 12.6 percent over three years and 15.4 percent over five years. Bonds had an 8.6 percent one-year annualized total return followed by 3.5 percent over three years and 6.2 percent over five years.

Of the four main asset classes tracked by the IPD U.S. Quarterly Property Index, industrial had the strongest total return of 3.6 percent for the first quarter. It was followed by office at 3.3 percent, retail at 3.2 percent and residential at 2.2 percent.

Greguski said the industrial figure was “very representative of an asset class that is performing exceedingly well.”

While residential was lower in the first quarter of 2015, it had the highest annualized return over the five-year period at 14.0 percent. It dropped to 9.8 percent over three years and 9.7 percent over one year, according to the index.

The more modest numbers now likely reflect more supply hitting the market as well as lower interest rates sending more people out of apartments and back into home ownership.

Overall, Greguski said he saw nothing in the first-quarter index data that surprised him.

“I continue to be encouraged by the asset class,” he concluded. “(The results) are reasonably consistent with the last several periods.”