Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/102789
Table 1: Investment Return Comparisons COMPOUNDED ANNUAL RATES OF RETURN AS OF 9/30/2012 Market Indices Consumer Price Index1 10-Year Treasury Bond2 Dow Jones Industrial Avg. NASDAQ Composite3 NYSE Composite3 S&P; 500 NCREIF Property Index NCREIF ODCE NAREIT Index (Equality REITs) YTD4 1.93% 1.83% 12.19% 19.62% 10.3 5% 16.44% 7.81% 8.39% 16.09% 1-Year 2.00% 1.89% 26.52% 29.02% 21.49% 30.20% 11.00% 11.61% 33.81% 3-Year 2.36% 2.71% 14.45% 13.66% 6.09% 13.20% 10.90% 12.19% 20.73% 5-Year 2.11% 3.05% 2.16% 2.90% -3.85% 1.05% 2.27% -1.14% 2.28% 10-Year 2.50% 3.72% 8.60% 10.27% 5.77% 8.01% 8.35% 6.67% 11.49% 15-Year 2.44% 4.28% 5.92% 4.18% 3.05% 4.70% 9.35% 8.23% 8.78% 1 Based on the published data from the Bureau of Labor Statistics (seasonally adjusted). Based on average end of day T-Bond rates. 3 Based on price index and does not include the dividend yield. 4 Year-to-date (YTD) averages are not compounded annually. Sources: BLS, Federal Reserve Board, S&P;, Dow Jones, NCREIF, NAREIT, compiled by RERC 2 Fundamentals Improve Despite weak job growth, vacancy in the major commercial property sectors has continued to improve during the past year. In the national market, apartment sector vacancy has declined 100 basis points since 3Q11, compared to the retail sector where vacancy has declined only 20 basis points in the same period. Rental growth has been mostly fat throughout the year, except for the apartment sector, where apartment rent has increased so much that we are again seeing the cost benefts of buying a home versus renting. In addition, 3Q12 total sales volume of commercial property decreased year-overyear on a 12-month trailing basis, with less volume noted primarily in the ofce, retail, and hotel sectors. Ofce. Te ofce sector's vacancy declined to 17.1 percent in 3Q12 from 17.4 percent a year earlier, according to Reis. Absorption was positive throughout the year, although asking and effective rents increased only slightly (approximately 35 cents to 50 cents per square foot on average). Te total volume of ofce properties declined to $60.2 million on a 12-month trailing basis in 3Q12, which was lower than a year ago and compared to the previous quarter's volume, according to RERC's transaction analysis. The sizeweighted average price dropped to $177 psf on a 12-month trailing basis. Industrial. Te industrial sector's availability rate fell to 13.1 percent during 3Q12, which is the ninth consecutive quarter in which the industrial availability rate has declined, Figure 1: Historical Spread Between Required Pre-Tax Yield Rates and 10-Year Treasuries according to CBRE. Total sales volume of industrial properties increased slightly to more than $30.7 million in 3Q12, higher than a year ago and the previous quarter's sales on a 12-month trailing basis, per RERC's transaction analysis. In addition, the size-weighted average price of industrial space increased to $55 psf on a 12-month trailing basis. Retail. Te retail sector's vacancy remained at 10.8 percent in 3Q12, down only 20 basis points from 3Q11. Asking and efective rents for neighborhood and community centers were fat, increasing an average of only 8 cents psf over the year, according to Reis. However, this is the frst year since the recession began that absorption was positive during each quarter. RERC's transaction analysis shows that 12-month trailing total retail sales Figure 2: Historical Spread Between Yield Rates and Capitalization Rates 165 165 600 155 155 145 145 135 125 125 500 2Q 20 3Q 08 20 4Q 08 20 1Q 08 20 2Q 09 20 3Q 09 20 4Q 09 20 1Q 09 20 2Q 10 20 3Q 10 20 4Q 10 20 1Q 10 20 2Q 11 20 3Q 11 20 4Q 11 20 1Q 11 20 2Q 12 20 12 400 Sources: RERC, Federal Reserve, 2Q 2012 January | February | 2013 400 2Q 20 3Q 08 20 4Q 08 20 1Q 08 20 2Q 09 20 3Q 09 20 4Q 09 20 1Q 09 20 2Q 10 20 3Q 10 20 4Q 10 20 1Q 10 20 2Q 11 20 3Q 11 20 4Q 11 20 1Q 11 20 2Q 12 20 12 600 Basis Points Basis Points 175 700 500 28 185 135 800 700 185 175 800 Source: RERC, 2Q 2012 Commercial Investment Real Estate