Intelligent Investment

Real estate consistently delivers solid long-term returns

12 Aug 2022

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Historically, commercial real estate has produced consistently positive total returns despite bouts of negative performance. Since its inception in 1977, the NCREIF Property Index has had no periods of negative returns when properties were held for six years or longer.

However, there have been some periods of negative returns when properties were held for less than six years. This was particularly true for office properties in the 1980s and early 1990s when an oversupply, capital outflows and rising interest rates contributed to poor performance.

When initial investments were made after Q1 1991, the minimum holding period for all properties falls to four years (Figure 1). Office requires another year – until 1996 – for performance to turn positive.

Real estate’s relatively high-income returns can help to offset periods of capital value deprecation. Although the S&P 500 produced superior total returns for much of the period we examined, equities are also more volatile. This makes investment timing more important for equities than for real estate.

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Source: CBRE EA, NCREIF, and Standard and Poor's.