US Commercial Property

US Commercial Property

US Commercial Property Chart Book

US Commercial Property Chart Book

Office and retail sectors turning a corner

Economic growth slowed in Q3, but we expect it to pick up again in Q4. And with earnings growth and inflation at high levels, we see the Fed Funds Rate and 10-year bond yields rising over the next few years, reflecting the upturn in economic activity. Occupier demand appeared to turn a corner in the office sector, with absorption turning positive. Neighbourhood and community retail centres also posted their second consecutive quarter of positive absorption, meaning that vacancy fell in all sectors. Office and retail rents stabilised, and industrial and apartment rents accelerated, while incentives fell across the sectors. With the occupier market outlook improving, investment hit a new quarterly record in Q3, driven by a record quarter for apartments. Yields fell on the back of robust competition for assets, supporting rapid capital growth in industrial and apartments. While we expect those to be the best performers, we see office values stabilising and retail values returning to growth in the coming quarters.

18 November 2021

US Commercial Property Chart Book

Office metro-level divergence to persist

After a period of strong economic growth in H1 2021, with high inflation squeezing incomes and the spread of the Delta variant, the outlook for H2 is less positive. That said, we don’t expect this to have a major effect on occupier markets, which will continue to be driven more by structural factors than cyclical ones. Low interest rates and a more stable economic outlook are driving strong capital flows into real estate, with the apartment and industrial sectors the major beneficiaries. Yields in those sectors have hit all-time lows and are set to fall further in H2, driving rapid rates of capital growth this year. Large metro-level divergences in performance are set to persist as readjustments in working, living and shopping patterns continue.

18 August 2021

US Commercial Property Chart Book

Apartments starting to recover; offices deteriorating

The economic recovery looks well-set, which should support occupier markets. However, structural change in the office sector means that occupier demand continues to fall, even while the beleaguered retail sector is showing improvement. Both of those sectors are set to suffer this year though, and retail’s loss continues to be the industrial sector’s gain, with capital values already up by 3.6% in Q1 against our forecast of 7% for the whole year. With people returning to cities, apartments markets are turning a corner. Not that investors have needed to see this before buying, as the sector has already been the most traded in each of the last two quarters, but it bodes well for our forecast of apartment capital growth of 5% this year.

13 May 2021
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US Commercial Property Chart Book

Sector and city performance to remain uneven

Fiscal and monetary stimulus have kept economic growth solid and will support a continued recovery. While this bodes well for occupier demand, structural factors have weighed heavily on the office and retail sectors. That weakness is set to persist this year. On the other hand, industrial has benefited from structural forces, while apartments, which have been faring poorly, are beginning to show the early shoots of recovery. Nevertheless, even in the apartments sector, where investment totals set a new quarterly record in Q4, there will continue to be a wide range of performance, with cheaper Southern cities faring particularly well and more expensive northern coastal cities less so.

18 February 2021

US Commercial Property Chart Book

Occupier markets heading south

Although the economy partially recovered in Q3, it is still operating well below capacity. Lower employment will weigh on the consumer sector over at least the next year. Office and retail have been the hardest hit sectors, with office sub-leasing availability rising sharply and retail insolvencies mounting. Capital values in both sectors are falling, while apartment values held steady this quarter. Conversely, industrial capital values rose again in Q3 and are up by 3% so far this year.

20 November 2020

US Commercial Property Chart Book

Marked deterioration in all sectors and more to come

Occupier demand slowed further in Q2 and although completions were exceptionally weak, vacancy rose in most sectors. As a result, rental values fell in the office, retail and apartments sectors, while industrial rents only nudged higher, with the weakest growth in years. All-property capital values fell by 2% q/q, driven by retail, where 6% was wiped off Q1 values. There are likely to be similar-sized markdowns in Q3.

14 August 2020

US Commercial Property Chart Book

Downturn set to hit home in Q2

Measures to slow the spread of the virus have had a hugely detrimental impact on the US economy. This began to hit occupier demand in Q1, but is yet to be reflected in dramatic changes in vacancy or falls in rents. Nevertheless, valuers have already marked down capital values on the basis of yield rises, reflecting the weakening in the outlook for commercial property.

20 May 2020

US Commercial Property Chart Book

Rental growth coming off the boil in all sectors

Economic indicators have improved recently, but remain at low levels, meaning that the recovery in GDP growth is likely to be gradual. As a result, occupier demand is likely to continue to slow, keeping upward pressure on vacancy rates and causing rental growth to slow further. But slow growth is moderately positive for capital values, as the low level of Treasury yields keeps property yields on a downward course.

21 February 2020
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