Defined Benefit
Defined Contribution
Insurance Assets
Nonprofit

Private Real Estate Strong; REITs Lag Equities

Private Real Estate Strong; REITs Lag Equities
clock
2 min 16 sec

ODCE gains 4.5% in 2Q22; the NPI rises 3.2%

Core real estate delivered another robust quarter, with strong fundamentals in the Industrial and Multifamily sectors; the NFI-ODCE Index (value-weighted, net of fees) gained 4.5% in 2Q22 and 12.0% year-to-date (YTD). Real estate returns are expected to moderate to 10% in 2022 and 8% in 2023. Commercial real estate remains attractive to investors with its yield relative to bonds, lower volatility profile, inflation-hedging properties, and cash-flowing characteristics.

  • The NCREIF Property Index, a measure of U.S. institutional real estate assets, rose 3.2% during 2Q22. The income return was 1.0% and the appreciation return was 2.3%.
  • Industrial led property sector performance with a gain of 5.9%. Office finished last with an increase of 0.6%.
  • Regionally, the West led with a 3.9% increase, while the Midwest was the worst performer but still gained 1.3%.
  • Transaction volumes are slowing as interest rates rise and economic uncertainty increases. Some experts expect transaction volumes of $800 billion, $725 billion, and $750 billion in 2022/2023/2024, respectively.
  • The Industrial and Multifamily sectors are expected to see continued rent growth.
  • Office vacancy is expected to stay above long-term averages for the near term.
real estate
Public real estate trails equities

REITs, both in the United States and globally, underperformed in 2Q22. Economic uncertainty took hold as rising rates and fears of a recession contributed to a market sell-off. Defensive sectors with more predictable income outperformed, led by data centers, net lease properties, and manufactured housing. On the other end, economically sensitive sectors underperformed; malls, office, and hotels faltered.

  • The FTSE EPRA Nareit Developed Index, a measure of global REITs, fell 17.4% in 2Q22 compared to a 15.8% drop for global equities (MSCI World).
  • The FTSE Nareit Equity REITs index, measuring U.S. REITs, dropped 17.0%, in contrast with the S&P 500 Index, which lost 16.1%.
  • The FTSE EPRA Nareit Asia Index (USD), representing the Asia/Pacific region, fell 9.4%.
  • The FTSE EPRA Nareit Developed Europe Index (USD) fell 28.6% during the quarter, led by Continental Europe (-30.6%) as inflation persisted and the European Central Bank focused on controlling inflation, raising fears of a recession.
  • REITs are now trading at a discount to NAV and offer relative value given the strength of underlying fundamentals
real estate

Real assets see widespread drops

Following very strong 1Q results, real assets as a group posted negative returns in 2Q as concerns over slowing global growth mounted.

  • A lone exception was the energy-heavy S&P GSCI Index, which eked out a 2.0% gain during the quarter.
  • The Bloomberg Commodity TR Index fell 5.7%.
  • WTI Crude closed the quarter at $106/barrel, up from $100 on 3/31/22 and $76 at year-end.
  • Gold (S&P Gold Spot Price Index: -7.5%), listed infrastructure (DJB Global Infrastructure: -7.1%), REITs (MSCI US REIT: -16.9%), and TIPS (Bloomberg TIPS: -6.1%) declined.
Share
Share on facebook
Share on twitter
Share on linkedin
Related Posts
Public Markets

Stellar Markets Across Asset Classes

Kyle Fekete
Callan expert assesses the global markets in 3Q24 and the outlook heading into the election.
Private Markets

Private Real Estate Income Is Positive, but Appreciation Falls

Munir Iman
Callan experts analyze commercial real estate and REITs in 2Q24.
Public Markets

Gains for Stocks Mask Wide Disparities; Little to No Change for Bonds

Kristin Bradbury
Callan expert analyzes the global stock and bond markets in 2Q24.
Private Markets

Commercial Real Estate Capital Markets: Insights for Institutional Investors

Christine Mays
A blog post on the state of the commercial real estate capital markets.
Private Markets

Private, Public Real Estate Indices Fall on Rate Concerns

Aaron Quach
Callan experts analyze commercial real estate and REITs in 1Q24.
Private Markets

Implementation Considerations for Institutional Investors in Rental Housing

Aaron Quach
A look at how to handle implementation issues with allocations to rental housing.
Private Markets

Senior Housing: Specialized Operating Expertise Required

Aaron Quach
A look at senior housing and issues for institutional investors.
Private Markets

Student Housing: A Resilient Sector but Facing Declining Demographics

Aaron Quach
A look at student housing and the issues for institutional investors.
Private Markets

Single-Family Rental Homes: Responding to Changing Lifestyles

Aaron Quach
A look at single-family rental homes and the issues for institutional investors.
Private Markets

Manufactured Housing: More Than Mobile Homes

Aaron Quach
A look at manufactured housing and issues for institutional investors.

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.