The last three years in a nutshell...
1. Work from home
2. Inflation
3. Higher interest rates
4. Less bond buying
5. Bank failures
6. War
7. Higher interest rates
8. Less bond buying
9. A little less work from home
10. More inflation
11. Higher interest rates
12. Less bond buying
13. More war
14. Steady interest rates
15. Less bond buying
16. Slower job growth
All these changes
+ constant doom and gloom narratives
= easy to lose sight of where the CRE sector stands.
...even more difficult to think accurately about relative subsector performance.
But the post-Covid scorecard is finally taking shape.
[Hedge: this is more of a 'back of the envelope' scorecard because we pieced together sources to get a rough idea of relative performance and attribution. However, we found it to be insightful and hope you agree.]
This chart compares three major variables:
1. Cumulative cap rate changes since 2021
E.g., multifamily cap rates have increased 151 bps since 2021 from a base of about 3.75%, which represents a 40% increase.
2. Cumulative NOI growth since 2021
E.g., multifamily REIT same-store NOI has increased 7% per year or 23% over the last three years.
3. Cumulative value declines vs. recent peak
E.g., multifamily values have fallen 22% from the recent peak per Green Street's CPPI.
Each asset class has a different story.
For multifamily, values have dropped a lot, coming off the extremely low cap rates of 2021-22, but about half of the headwinds from higher cap rates have been mitigated by income growth.
Strongest NOI growth? Industrial
Weakest NOI growth? Office
Most muted cap rate effect? Malls
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