Capital Economics

US Commercial Property Data Response

Commercial Property Lending (May.)

Commercial real estate debt held by banks grew again in May. But while we expect growth to accelerate as the year progresses and confidence returns, investor caution toward the office and retail sectors will ultimately limit the pace of the recovery.

11 June 2021

US Commercial Property Outlook

Substantial upgrades to industrial and apartments this year

The economic recovery continues in earnest, but this is raising questions about quite how transitory the current high rates of inflation are. We think that core inflation will stay elevated, which will force the Fed to push up rates in late 2023, with bond yields climbing to 2.5% in the meantime. Nevertheless, given the strong prospects for NOI growth in the industrial and apartments sectors, we think these still look fair value. Returns there should average 7% p.a. and 6% p.a. respectively in 2021-25. But the reverse is true for retail and offices. Although yields remain elevated in those sectors, we see occupancy and rents falling further in the next two years, leaving them looking expensive at current pricing. We therefore think yields need to climb further and capital values fall further before they look attractive. As a result, we are forecasting average annual returns of just 4.5% p.a. for retail and 2.5% p.a. for offices.

Drop-In: US Commercial Property (Tuesday 15^th June, 1200 EST) Andrew Burrell and Kiran Raichura will be discussing the upgrades to our industrial sector forecasts and taking your questions on any other issues arising from our latest US Commercial Property Outlook. Register here.

10 June 2021

European Commercial Property Update

Are green commercial leases the future?

With emission targets needing to be met by 2030, the race is on for the real estate sector to decarbonise. By forcing tenants and landlords to share the risks, benefits and costs of environmental policies, green commercial leases are a promising tool, and widespread adoption seems likely. That said, we don’t expect a significant impact on commercial property performance yet.

In the view of wider interest, we are also sending this publication to clients subscribed to our US and UK Commercial Property Services.

10 June 2021

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