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US real estate market to see total returns of 6.0% in 2018, survey finds

Average total returns in the U.S. commercial real estate market, including income, are likely to hit 6.0% across all property types in 2018 before dropping to 5.3% in 2019, according to the Pension Real Estate Association's first-quarter Consensus Forecast survey.

The survey, conducted in February, was based on the real estate return predictions of 22 participating firms representing U.S. property investment managers, advisers and researchers.

In 2018, survey participants predict that the industrial sector will have the largest average total return, reaching 8.9% on the National Council of Real Estate Investment Fiduciaries, or NCREIF, Property Index. The office, apartment and retail sectors are forecast to reach total returns of 5.6%, 5.4% and 5.1%, respectively.

The consensus view of 2018 real estate returns has remained below 6.0% on the NCREIF Property Index since the first quarter of 2016. Compared with the fourth-quarter 2017 results, survey participants during the first quarter expected higher returns for 2018 across all property types.

In 2019, total returns are expected to fall to 6.8% for the industrial sector and to 5.0% for the apartment sector. The office and retail sectors are both predicted to hit total returns of 4.7% for the year. Total returns are projected to decline further in 2020 to 4.8% across all property types, on average.