The latest National Council of Real Estate Investment Fiduciaries or NCREIF data shows that the real estate market of the United States has generated its lowest yearly return since 2009. The Open-end Diversified Core Equity or ODCE index of the NCREIF which tracks about $174 billion worth of real estate assets, posted the annualized return of only 8.77 percent for 2016. These results confirm that the American real estate scene has plateaued post robust capital appreciation for a number of years.
The NCREIF has also published that the net inflows into the ODCE funds hit its lowest yearly total from 2009. There is a total of 24 ODCE funds, with all of them attracting only $884 million worth of net inflows during 2016. This number is much less than the yearly trend of five billion to $6.5 billion of 2015 and 2014. The net inflows became negative during 2016s fourth quarter, as the redemption and distributions at about $4.4 billion outgrew the contributions. The latter came to about $3.9 billion. Even during the summer of 2016, it was reported by IPE Real Estate that requests for redemption had started to accumulate the ODCE funds.
In 2016, it was seen that US pension funds pulled capital out of American open ended property funds. This happened as the return prospects diminished. Sources which tracked such activity said that millions of dollars of funds have received redemption requests. To put in perspective, JP Morgan Strategic Property Fund by itself has been the recipient of one billion dollars of requests. The PGIM Real Estate managed PRISA I has been the recipient of $700 million.
Pension funds and capital growth
The capital of US pension funds is the bedrock of the fund sector. The funds are searching for redeployment of capital post a number of years of robust returns for the core American real estate industry. The yearly returns ranged from 12 percent to 13 percent between the 2010’s first quarter and 2016’s second quarter. However, they seem to be slowing down. The annualized returns year to the date have been about four percent.
There was stagnation of quarterly capital growth at a little above two percent throughout 2016. It was in the region of 3.5 percent during 2015. There was stability in the quarterly income returns during the 2015 and the 2016 years, with just a little above one percent.