Return from commercial real estate was up above 10% in 2012, leading investors to wonder if now is the right time to get exposure in the market.
Private real estate values rose by 10.5 percent in 2012 according to a recent report from the National Council of Real Estate Investment Fiduciaries. The number is based on the council’s NCREIF Property index. The rise in value of commercial property in the United States in 2012 might make investors question whether or not it is time to invest in real estate once again.
The chart above shows the growth in the value of real estate by sector, divided into returns from income, and returns from appreciation. Returns were greatest in the retail sector, followed by Apartments, Industrial, Office an finally Hotels, which had the lowest returns in the past twelve months. NPI is the total index return.
The NCCREIF property index measures the investment performance of a wide range of commercial strategies across the United States for investment purposes. The index’s results are released quarterly, and the figures have been positive for every single quarter since the first three months of 2010.
For the fourth quarter of 2012, the index rose by 2.54 percent. In the same quarter in 2011 the index returned 2.96 percent. Returns in 2012 were not spectacular by any means, but they were solid. The index rose by in or around 2.5 percent in each quarter of the past year, not something that can be said for many indexes.
There are huge problems in the real estate market, and its name was so besmirched by the 2008 financial crisis that investors have, for the most part, turned their heads away from the market. There is still money to be made, however, and some savvy investors are getting in on the action; many of them have exposure through equities rather than pure retail.
Bill Ackman is currently involved in a battle to push General Growth Properties Inc. (NYSE:GGP) to put itself up for sale, and return value to its shareholders. Ackman also spun off from General Growth Properties Inc. (NYSE:GGP) and became the chairman of Howard Hughes Corp (NYSE:HHC), another real estate company.
There is money in commercial real estate, and if the market returns to where it once was, there may be huge dividends for investors brave enough to get into the market early. This narrative has, of course, dominated since the initial downturn in 2008, and no doubt caused problems for many investors brave enough to get in too early.
In other real estate news, we recently took a look at farmland values across the United States, and questioned whether or not the market for farmland is currently in a bubble. Real Estate is dangerous, and investors are nervous about getting involved after the mistakes so many made in the lead up to the financial crisis.
However, according to a recent piece from ETF Trends, money is currently pouring into real estate ETFs. Those ETFs allow retail investors to get exposure on the commercial real estate market based on an underlying index.
There are lots of ways for investors to get exposure in the real estate market right now, but in order to receive great returns, investors are hoping to see substantial recovery in the market. that hasn’t happened yet, and there hasn’t been any real indication that its coming any time soon.