Strong property market fundamentals pushed apartment returns above historical averages last year. NCREIF reported that, on an unlevered basis, the total return for apartments was 12.0 percent, the highest in four years and well above the 20-year average of 9.8 percent.
Even so, apartment returns were below those of all other real estate asset types for the second straight year. This is largely a result of other asset classes “catching up,” as apartments recovered first.
NCREIF provides a second measure of returns using property appreciation measures only for properties that were bought and sold (that is, excluding appraisal estimates of increases in property values). In these transactions-based indexes (TBIs), apartment returns outpaced those for office and retail, but they trailed behind the returns for industrial properties. (There are not enough data to compute a TBI for hotels.)
Apartment REITs gained 16.5 percent in 2015, far more than all REITs combined (2.8 percent) and second only to the self-storage sector, which returned 40.7 percent. This was also far more than the total return for the S&P 500 of 1.4 percent. (Return calculations include both dividends and price appreciation.)
As is standard practice, all returns above are calculated nominally. Adjusting for inflation, the real NCREIF return for apartments in 2015 was 11.3 percent, while the real NAREIT return for apartment REITs was 15.8 percent.
