Office Property Returns — National Council of Real Estate Investment Fiduciaries — 7.68 Percent Average Annual Return Since 2000

Demand for office properties is a function of how many jobs require office space. Job growth and changes in how business is done (think telecommuting here) impacts the demand for offices and ultimately rents and returns. As much as the job market volatility creates ebbs and flows in demand for office space, we as a society continue to evolve in the use of technology which also affects demand. I am writing this blog connected to my home’s Wi-Fi system while watching news (from a satellite) at 4 something in the morning. And this just as well could have been written while on an airplane flight or at the beach using broadband. Even Gillette Stadium, home field for the New England Patriots, is now Wi-Fi enabled (although the one home game played thus far post-Wi-Fi was a loss, but 15,000 people did connect to Wi-Fi during the event).

As a result, office property returns differ when compared to other commercial property types.

So where do we get the data?

The National Council of Real Estate Investment Fiduciaries (NCREIF) is a non-profit trade association for tax-exempt investors (such as pension funds) in real estate managed by fiduciaries. They report accurate, unbiased real estate return data. NCREIF employs a framework of reporting requirements assuring consistency in return analyses.

One of the many data series provided is the NCREIF Property Returns Index reporting quarterly performance for more than 7,200 commercial properties having a combined value in excess of $310 billion. This series is perhaps the best proxy for U.S. commercial real estate performance. For office properties, data commencing Q1 1978 can be viewed by clicking here.

This series from NCREIF includes both cash flow and property value change for the quarter. Assumptions include (and for more details click here) :

  • Each quarterly return assumes the property was purchased at the beginning of the quarter and sold at the end of the quarter with all cash flow going to the investor (Net Operating Income – Capital Expenditures)
  • Properties are purchased with cash—no loans
  • There are no depreciation schedules for tax purposes (tax-exempt investments), nor any capital gains tax implications

Since 2000, the average trailing twelve months (TTM) return on office properties was 7.68 percent. This includes both the net operating income after deducting property management fees plus value change. The table shows the trailing 12-month returns for retail properties held in NCREF-member investments.











To compare to other types of commercial properties, the following table shows returns since 2000 using the same NCREIF data source.







The graph below shows this return on a TTM basis. The annualized return on a TTM basis in the latest quarter was an impressive 10.15 percent (compare that to the 10-year Treasury which closed yesterday at a 1.7 percent yield and realize how impressive office returns have been).














So what’s the potential for office properties in the future? Office real estate is doing well despite the anemic job growth rate being seen in the past few years. And while technology can make tools accessible, it has a difficult time replicating the synergies of working in an office.

Without question, it remains time to overweight in real estate. Including offices.

If you have questions—just email back.


(written on September 26, 2012)


  1. Rhyale

    If a university wanted to invest in real estate, should they separate commercial into retail and office space or can they buy both and expect returns to model each?
    what other things wold they need to consider?

    1. Ted C. Jones Post author

      The returns to real estate, like all investments, should be examined in a risk-return framework. Thus I would expect different returns to the differing property types. This is reflected in differing capitalization rates and value change levels.


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