Commercial real estate returns by decade

Source: NCREIF ODCE Index, as of Q3 2024, latest data available.
- Following two challenging years, the CRE market enters 2025 with the wind at its back, fueled by strengthening fundamentals, growing investor confidence and stabilizing interest rates.
- CRE property price declines have largely abated, yet the recovery ahead is unlikely to mirror the 2010s, when price growth was fueled by the Fed’s extended zero interest rate policy (ZIRP) combined with a steady decline in capitalization rates.
- In fact, the 2010s were an anomaly in CRE investment returns over the past four decades as double-digit returns were driven primarily by price appreciation, with less than half coming from income.
- As the chart shows, CRE has been an income-driven asset class throughout its history, with price appreciation generally playing a more modest role (and usually deriving from growth in property income).
- Today, we have seen income drive CRE returns once again, a pattern that could remain in place as the market reverts toward a more normal environment favoring income-centric strategies. The double-digit rates of returns of the last decade could be harder to come by, but elevated yields could lead to healthier income generation.