Real estate's long, hot run could be history, with returns for core properties predicted in the single digits over the next 12 to 24 months.
"We're being blunt about real estate as an asset class," said Jacques N. Gordon, international director, investment strategy, LaSalle Investment Management, Chicago. "If you stick to core, you are looking at returns that are very modest go-ing forward."
"Real estate has had a very strong run for the past three years," said Stephen J. Furnary, chairman and chief executive officer of ING Clarion Partners, New York. "It can't go on forever in the same magnitude."
Core real estate return predictions for the next two years range from 4% to 9%. By comparison, in the 12 months ended Sept. 30, the NCREIF Property index returned 19.2%.
Real estate investment trust returns are also expected to be in the single digits during the same period, falling below the Standard & Poor's 500 stock index. The NAREIT Composite index returned 22.6% for the 12 months ended Sept. 30; the S&P 500, 12.3%.
Expected returns for core properties matter. Core properties still make up 60% to 70% of the average institutional real estate portfolio, even though many large institutional investors have been selling their core holdings. And core real estate represents some 60% of the NCREIF Property index.