Defined Benefit
Defined Contribution
Insurance Assets
Nonprofit

NCREIF Property Index Falls 3.5% and REITs Lag Equities

NPI Falls 3.5% and REITs Lag Equities
clock
2 min 15 sec

Private real estate indices fell in 4Q22, while REITs both in the U.S. and globally lagged equities. The real estate transaction market is slowing, signalling a difference between buyer valuations and seller expectations, which could result in slower sales/acquisitions activity by fund managers.

The denominator effect is beginning to impact investors: Private assets are just starting to reflect repricing, while the equity market correction has reduced overall fund values, resulting in allocations to real estate meeting or exceeding targets.

Real assets did well in 4Q but full-year results were poor except for energy-related indices.

Negative Appreciation in Major Real Estate Sectors
  • The NCREIF Property Index, a measure of U.S. institutional real estate assets, fell 3.5% during 4Q. The income return was 1.0% while the appreciation return was -4.5%.
  • Hotels, which represent a small portion of the index, led property sector performance with a gain of 3.4%. Office finished last with a loss of 4.8%.
  • Regionally, the South led with a decline of 2.5%, while the East was the worst performer with a drop of 3.9%.
  • All major property sectors and regions, except for Hotels, experienced negative appreciation.
  • The NCREIF Open-End Diversified Core Equity (ODCE) Index, representing equity ownership positions in U.S. core real estate, fell 5.2% during 4Q, with an income return of 0.59% and an appreciation return of -5.76%.
real estate
REITs Lagged Equity Indices
  • U.S. REITs, as measured by the FTSE Nareit Equity REITs Index, rose 5.2%, in contrast with the S&P 500 Index, which gained 7.6%.
  • Despite strong earnings, forward REIT earnings estimates continued to weaken, reflecting the potential for an economic slowdown as well as financing cost pressures.
  • Retail and industrial were relatively resilient, driven by healthy leasing activity and guidance upgrades.
  • Residential REITs were negatively impacted by elevated expenses and moderating pricing power.
  • Office stocks lagged due to several high-profile technology companies announcing layoffs, continued headwinds related to remote work, and larger negative earnings estimate revisions.
  • The FTSE EPRA Nareit Developed REIT Index, a measure of global real estate securities, rose 6.9% during 4Q22 compared to a 9.8% increase for global equities (MSCI World).
  • The FTSE EPRA Nareit Asia Index (USD), representing the Asia/Pacific region, rose 9.0%, lifted by a rally in rate-sensitive Australian REITs.
  • European REITs, as measured by the FTSE EPRA Nareit Europe Index (USD), rose 13.9%, driven by currency tailwinds in both the euro and the pound.
4Q22 Real Estate and Real Assets Returns
Real Assets Held Up in the Quarter
  • Real assets as a group performed well in 4Q.
  • The S&P GSCI Index rose 3.4%; Gold (S&P Gold Spot Price Index: +9.2%), REITs (MSCI US REIT: +5.2%), infrastructure (DJB Global Infrastructure: +9.6%), and TIPS (Bloomberg TIPS: +2.0%) all posted solid returns.
  • Full-year results remained poor, however, for most real assets outside of those related to energy. The Alerian MLP Index gained 30.9% as it benefited from higher energy prices.

Disclosures

The Callan Institute (the “Institute”) is, and will be, the sole owner and copyright holder of all material prepared or developed by the Institute. No party has the right to reproduce, revise, resell, disseminate externally, disseminate to any affiliate firms, or post on internal websites any part of any material prepared or developed by the Institute, without the Institute’s permission. Institute clients only have the right to utilize such material internally in their business.

Share
Share on facebook
Share on twitter
Share on linkedin
Related Posts
ESG

Can Institutional Investors Target ‘Food Deserts’ for Investment?

Aaron Quach
Aaron Quach describes food deserts and explains if and how they can be added to institutional portfolios.
ESG

Energy Transition Is Having a Moment, but Does It Have Staying Power?

Jan Mende
Jan Mende describes energy-transition investments and how they can be incorporated into the portfolios of institutional investors.
Private Markets

Making Sense of the Private Real Estate Market Environment

Aaron Quach
Aaron Quach helps institutional investors make sense of the valuations for their private real estate investments in the current interest rate environm...
Public Markets

Global Stocks Rebound in 4Q; Fixed Income Suffers Dreadful Year

Kristin Bradbury
Kristin Bradbury analyzes global equity and fixed income markets in 4Q22 and for the full year.
Private Markets

Private Real Estate Gains, but REITs Fall; Commodities Also Dip

Munir Iman
Kristin Bradbury, Munir Iman, and Aaron Quach analyze real estate and real assets performance in 3Q22.
ESG

Green Financing in Residential Real Estate

Aaron Quach
Christine Mays and Aaron Quach explain green financing and how it can help investment managers obtain more favorable financing terms.
Public Markets

There Was Really No Place to Hide in World Markets

Kristin Bradbury
Kristin Bradbury analyzes global equities, fixed income, and real assets markets in 3Q22, where there really was no place to hide.
Private Markets

Private Real Estate Strong; REITs Lag Equities

Munir Iman
Private real estate performed well in 2Q22 while REITs lagged equities. Real assets saw widespread drops.
Public Markets

Few Bright Spots as Markets Continue to Drop

Kristin Bradbury
Kristin Bradbury recaps how the global markets performed in 2Q22.
Private Markets

Investing in Data Centers: The Real Assets of the Digital Age

Lauren Sertich
Lauren Sertich provides a summary of her recent paper on investing in data centers.

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.