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Deals & Dealmakers

Industrial leading way as property returns continue to rise

Total returns on U.S. commercial property have increased for the second consecutive year, with the industrial sector in particular performing well.

In its Quarterly Property Index for Q2 2015, MSCI Inc., a provider of research-based indexes and analytics, found commercial property in the U.S. returned 12.6 percent in the year to June 2015, up from 11.2 percent in the year to June 2014.
The Industrial sector gave a total return of 14.8 percent, a rise of 160 basis points from 2014.

Returns across all sectors of the  market improved, with Retail, Office, and Residential  properties all experiencing a rise.

Capital Growth rose for the fourth consecutive year, increasing 150 basis points from 5.5% in 2014 to 7.0% in 2015.

Office properties in the West of the U.S. performed the strongest, returning 16.5 percent over the period.

The worst performing sector was in the East, where Residential property returned only 7.9 percent versus 8.5 percent for the same period last year.

Ken O’Brien, executive director, MSCI commented: “The rise in total returns in the commercial sector has come almost exclusively from increases in capital growth.

“Office capital growth was 7.9 percent versus 5.4percent last period, and Industrial improved to 8.6 percent from 6.9 percent. Income return was down from 5.4 percent to 5.2 percent with ‘Other’ properties experiencing the greatest decline from 6.1 percent to 5.6 percent.

“Expenditures on purchases increased by $7 billion over the year from $24 billion to $31 billion, while sales activity increased also from $8.5 billion to $13.5 billion. Offices comprised the majority of the purchases with $18.2 billion of activity.”

The IPD U.S. Quarterly Property Index measures unleveraged total returns of directly held standing property investments from one open market valuation to the next.

The index tracks performance of 4,237 property investments with a total capital value of $248.5 billion.

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