Income continues to be the leading driver of US commercial real estate performance, a change that has taken place gradually as the real estate sector transitioned from recovery to expansion over the past two years. The fact that income rather than capital market effects is driving the returns, is in-line with long-term performance of the sector and is consistent with our expectations for the foreseeable future.
Income again dominated appreciation during the first quarter of 2017. During 1Q17, income provided two-thirds of the NCREIF Property Index quarterly total return of 1.5%, representing performance of unlevered properties. Details of the relative performance of key asset classes are shown in exhibit 5 on page 6.
US commercial real estate has avoided many of the stresses of a long expansion, but is experiencing a period of relatively flat occupancy levels and average rent growth. The flattening in occupancy levels is illustrated in exhibit 1, which shows vacancy rates influenced by a mix of upward and downward pressures.
Source : UBS AG