Finally, Research Affiliates assumed two scenarios whereby commercial property stayed at today’s estimated 20% above-trend prices or reverted back to its long term price trend. If the current trend continues, commercial property should deliver a return of two percentage-points annually above inflation. If prices revert to their long-term trend, commercial property will return roughly enough to help it keep pace with inflation.
Although it’s admittedly too soon to tell, my forecast so far seems more accurate than NAREIT’s. The Vanguard REIT Index Fund VGSIX, -0.72% was up 1.29% for the year through August 18. Meanwhile, the S&P 500 SPX, +0.05% rose almost 10%, including dividends, while the Bloomberg Barclay’s U.S. Aggregate Bond Index is up 3.21% for the year. REITs have delivered roughly 2% in yield so far this year, meaning their 1.29% total return reflects a drop in prices.