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S&P versus CRE: Comparing the Numbers

In a recent discussion with Connect CRE, John Chang offered an optimistic viewpoint. “Compared to other investment options, the in-balance commercial real estate supply and demand climate offers greater stability and a positive long-term yield outlook,” said Chang, who is Marcus & Millichap’s National Director, Research Services.

Less than a week later, Marcus & Millichap released “Commercial Real Estate vs. S&P 500,” a research video that provided data backing to the idea that CRE is a good portfolio-balancing investment, relative to the public equity markets.

In the video, Chang noted that the stock market was down by 24% from its peak in early 2022. While allowing that “the stock market was up a lot last year—it gained 27% in 2021,” Chang noted that this year’s losses wiped out that entire gain. And while the stock market’s gains over the past week might signal some optimism, Market Watch’s Mark Hulbert said that such gains little more than daily spikes, and “daily spikes happen more frequently during bear than bull market,” he opined.

And in comparison, commercial real estate offered a far better price appreciation when compared to the S&P 500. Specifically, “while the stock market peaked at the end of 2021, commercial real estate kept going,” Chang said in the Marcus & Millichap video. Not only that, but CRE price increases were across the board, even among the so-called laggards of office and retail.

“Think about that for a minute,” Chang said. “In the first six months of 2022, the stock market fell 20%, while office property prices went up by 3.8%.”

Chang allowed that CRE prices tend to lag, meaning that closed prices for Q2 2022 deals were probably under contract before the Federal Reserve raised the Effective Federal Funds Rates in September 2022. Chang also indicated that the Fed press conference on Sept. 21, 2022 will also have an impact on commercial real estate.

Still, Chang views commercial real estate as a potentially more effective investment than equities for the following reasons:

  • While CRE values move more slowly than the markets, they’re less dramatic and volatile
  • Total returns over the long run are higher – CRE compound annual growth rate since 2000 was 7.8%, versus the S&P 500’s rate of 5.3%
  • Cash flow and property values tend to be more inflation resistant than stocks

Additionally, “real estate offers a variety of tax advantages, as well as a wide range and leverage and financing options,” Chang said.


Inside The Story

Marcus & Millichap's John ChangMarcus & Millichap

About Amy Wolff Sorter

I love content. I love writing it, visualizing it, and manipulating it to fit into different formats. I have years of experience in working with content, both as creator and editor. The content I create and edit provides assistance with many goals, ranging from lead generation, to developing street cred through well-timed thought-leadership pieces. Content skills include, but aren't limited to, articles and blogs, e-mails, promotional collateral, infographics, e-books and white papers, website copy and more.

  • ◦Financing
  • ◦Economy
  • ◦Policy/Gov't
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