Property Values Increased During May, Especially in the South Region

Investment real estate values increased by +0.57 percent during May 2016 according to the FTSE NAREIT PureProperty® Index Series, which provides the earliest measurement of changes in the market values of properties held for investment purposes.  The South region saw the strongest appreciation at +2.02 percent, while property values increased slightly in the Midwest and West regions by +0.35 percent and +0.11 percent respectively.  Property values in the East region dipped slightly during May at -0.13 percent.

Property values nationwide as measured by the PureProperty Index have increased strongly at +3.54% since the beginning of the year.  The South region has seen the strongest year-to-date gains at +6.68%, while property values increased by +3.53% in the Midwest region and +2.58% in the East region.  The West region has lagged slightly behind the rest of the country with property values having increased by just +0.93% since the beginning of the year.

With distributed income from property investments averaging +0.28% nationwide, total returns averaged +0.85% during May; since the beginning of the year, however, income of +1.55% has combined with strong property appreciation to provide total returns averaging +5.13%.  Year-to-date total returns have been strongest in the South region at +8.44%, with the Midwest and East regions also strong at +5.56% and +4.05% respectively; the West region has lagged slightly with total returns averaging +2.12%.

The PureProperty Index Series, launched last year, provides a daily measure of U.S. real estate price and total returns at the level of both property (unlevered) and equity investments.  The index series infers changes in the market values of apartment, health care, hotel, industrial, office, and retail properties owned by stock exchange-listed U.S. equity real estate investment trusts (REITs) by relating observed changes in stock prices to the property holdings of each REIT and correcting for the effect of each REIT’s capital structure.

Because it evaluates returns by geographic region as well as by property type, the PureProperty index series can help investors take advantage of performance differences among targeted segments of the U.S. property market through diversified exposure to properties in each segment.  During May, for example, apartment properties in the Midwest region significantly outperformed those in the West region, with implied property values increasing by an average of +4.47% for the Midwest region Apartment segment compared to +1.07% for the West region Apartment segment, and total returns averaging +4.87% compared to +1.38% respectively.  Similarly, over the first five months of the year office properties in the Midwest region have outperformed those in the West region with implied appreciation averaging +8.75% and +2.33% respectively.

Equity total returns measured by the PureProperty Index Series (+0.85%) fell well short of equity returns measured by the FTSE NAREIT All Equity REIT Index (+2.31%), reflecting especially strong performance during May among several equity REITs that are not constituents of the PureProperty Index Series including those holding single-family homes (+13.92%), data centers (+8.94%), manufactured home communities (+5.23%), self-storage facilities (+4.94%), and properties in the Specialty sector (+3.99%).

The Market Commentary blog on reit.com presents analysis of the macro- and micro-economic fundamentals impacting the REIT and commercial real estate industry. The Nareit economics team offers their commentary on the state of the market, the outlook for commercial real estate and breaking macroeconomic news. The opinions set forth here are solely those of its author(s), and do not necessarily reflect the views of the Nareit or its membership. For more, see our Terms of Use.