US real estate rewards investors with 12% return

US real estateInvestors who have caused global property to emerge as one of the year’s most popular asset classes so far have been rewarded by their US holdings.

Total returns on US commercial property have risen for the second consecutive year, gaining 12.6%, as at June 2015.

The IPD US Quarterly Property Index, released by MSCI, shows industrial buildings posted the largest return of 14.8%, or 160 basis points higher than the year before.

The total return in the commercial sector was driven almost entirely by capital growth, while income returns were down from 5.4% to 5.2%.

Office capital growth was 7.9% versus 5.4% last period, and industrial buildings improved to 8.6% from 6.9%.

Residential properties as a whole, and all other commercial property sectors showed an improvement in returns, though returns from residential real estate in the eastern US fell from 8.5% last year to 7.9%.

Data from property asset manager DTZ recently showed that global investment in commercial property grew by more than 10% in the first half of the year with Europe and North America at the forefront. The low interest rate environment was a driver for the increased allocations.

•  Capital Growth rose for the fourth consecutive year, increasing 150 basis points from 5.5% in 2014 to 7.0% in 2015.
•  Office properties in the West of the U.S. performed the strongest, returning 16.5% over the period. The worst performing sector was in the East, where Residential property returned only 7.9% versus 8.5% for the same period last year.

“Expenditures on purchases increased by USD 7.0bn over the year from USD 24bn to USD 31bn, while sales activity increased also from USD 8.5bn to USD 13.5bn. Offices comprised the majority of the purchases with USD 18.2bn of activity.”

The IPD U.S. Quarterly Property Index measures unleveraged total returns of directly held standing property investments from one open market valuation to the next. The index tracks performance of 4,237 property investments with a total capital value of USD 248.5bn as at June 2015.

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