There’s little cause for concern that appraisers are overvaluing retail properties, a senior real estate analyst contends. Will Robson, executive director and head of real estate research with MSCI, points to 2018 transaction data showing that purchase prices more often exceeded the most recent valuation, and cautions that retail REIT performance does not provide a fully comparable picture of directly held assets.

He’s responding to grumbling from some market watchers who question the dissonance between share prices and retail appraisals. While noting that appraisers struggled to keep pace with market conditions that are propelling capital growth, sales data indicates they were actually most off the mark on industrial appraisals.

Industrial sales values surpassed appraised values by 8.2 per cent last year. The achieved retail premium was a more modest 2.8 per cent.

“For a listed security with thousands of sellers agreeing on prices for thousands of identical shares, there is no question about the market price of the security. Negative sentiment about market dynamics can be efficiently transmitted to pricing,” Robson observes. “When it comes to private real estate, however, we don’t have evidence for specific buildings — only that of broadly comparable buildings.”

Tracking transaction data over 18 years since 2000, both retail and industrial properties sold below appraised values during the depths of the financial crisis in 2008-2018, but have sold at a premium at all other times. Residential and office properties have consistently traded at a premium.

“We can’t observe bids on assets that haven’t sold or those not offered for sale so there is no way to assess the accuracy of the valuations of such properties,” Robson adds. “For assets that have traded, however, it seemed appraisers did a reasonable job.”