Each year when I head to my Doc’s office for the annual physical, the first thing they do (besides weighing you—which is news I already know) is to take your blood pressure and heart rate. As a Doctor of real estate (not a REAL doctor according to my mother-in-law since I cannot legally prescribe prescriptions nor carve on people), I essentially do the same when I examine markets by looking first at how industrial property is performing.
Industrial real estate varies from the local mom and pop service that has a tiny office-warehouse location delivering coffee services to your office, all the way to the largest industrial buildings in the U.S. in which Boeing builds their latest phenomenal aircraft.
When you know how well the industrial segment is performing, you typically know where the entire economy is heading.
So how is the industrial real estate doing? Again, just like apartments, extremely well.
Industrial real estate’s annualized average rate of return since 2000 is a powerful 8.40 percent. In the 12 months ending December 2013 it tallied a very impressive 11.79 percent. Pretty much says it all. Unlike apartments, where the annualized return is in a slight decline mode, industrial property returns are rising. This explains where the U.S. economy is heading. And that is good news.
This analysis is the next installment on the U.S. commercial real estate market performance of a series started April 8th. Yesterday was apartments and following industrial will be the office market.
Once again, where do these numbers come from? (This is the boiler plate section).
The data for this analysis comes from the National Council of Real Estate Investment Fiduciaries (NCREIF), which is a non-profit trade association for tax-exempt investors (such as pension funds) in real estate managed by fiduciaries. NCREIF reports accurate, unbiased return metrics, with a framework in place that assures consistency over time and across investors. To read more about NCREIF click http://www.ncreif.org/index.aspx
NCREIF’s return assumptions include:
- Properties are acquired through all-cash transaction (no loans)
- Since the returns are within tax-free investments, no taxes are paid (except property taxes). There are no long-term gains taxed at the time of sale, and the investors do not depreciate the property.
- Returns are calculated quarterly and include both the net-cash flow from the property and the change in the property value. Specifically, total return is the net operating income from the property, less property management fees, plus the change in value.
For details and related questions click http://www.ncreif.org/faqsproperty.aspx
Within the NCREIF space, more than 7,000 commercial properties are tracked with a combined market value of $353.9 billion. This data series is recognized as a top proxy for U.S. commercial real estate returns and performance.
Good news for the U.S. economy is the positive trajectory of the industrial market. Things are indeed looking up.
If you have any questions, do not at all hesitate to respond back.