Will Rising Rates Damage Real Estate Returns?

August 24, 2018 | Jeremy Zirin, CAIA, Senior Research Analyst, Real Assets

Our chart this week examines the historical1 total returns of the NCREIF Property Index (“NPI”) during times of rising interest rates. As illustrated in the chart, real estate has historically showed little correlation with interest rates indicating changes in interest rates do not immediately translate to asset prices. In fact, the average annual total return during periods of rising rates is 12.3%; typically rising rates are accompanied by stronger economic growth and/or inflation, both which inevitably draw investors to real assets. It is important to keep in mind, however, that private real estate is valued less frequently than its publicly traded (daily valued) counterparts. This is important because changes in private real estate prices will typically lag changes in interest rates as a result of less frequent valuations.

With interest rates expected to rise further, the spread between the 10-Year Treasury and real estate cap rates will continue to shrink, but strong fundamentals – such as rent growth and economic growth – are much more important than movements in the 10-year Treasury. There is no magic number for the 10-year that would trigger a re-pricing of real estate, but some property types are more susceptible to higher rates such as those with longer-term bond-like leases. Going forward, we believe that a mix of strong fundamentals mixed with stable rising rates will translate into moderate, income-driven returns to core real estate in the mid to high single-digit range.

1Since inception

Print PDF

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.


Jeremy Zirin, CAIA
Senior Research Analyst, Real Assets

Get to Know Jeremy

Related Content


Can a Government Shutdown Slow the IPO Market?

Companies have been staying private longer, but expectations for Initial Public Offerings (IPOs) in 2019 are high. Uber and Lyft…

Can the PG&E Bankruptcy Create Profits for Hedge Funds chart


Can the PG&E Bankruptcy Create Profits for Hedge Funds?

This week’s chart of the week examines the price performance of Pacific Gas and Electric (“PG&E”) Corporation’s public debt and…

Equities Close to a Key Resistance Level chart


Equities Close to a Key Resistance Level

This week’s chart looks at price action of the Value Line Geometric Index. Originally launched in 1961, the Value Line…


Did the Fourth Quarter Wake Up a Sleeping Bear?

Like past bull markets, this most recent one since 2009 has had relatively little daily volatility, which we define here…


2019 Market Preview

Coming off a difficult 2018, investors face a litany of questions going into this year, whose potential answers will undoubtedly…


Brexit Contributes to Global Uncertainty

Political instability increased dramatically in 2018 and the Brexit looms as a major contributor to the uncertainty in 2019. The…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >