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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.
Kiran Raichura Senior Property Economist
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US Commercial Property Update

The six major markets will not be the only losers

Pandemic-accelerated migration patterns were already driving outperformance in the southern states. But they have also brought the poor performance of weaker markets to the fore. With those structural changes likely to continue to play out over the next few years, we expect metros such as Detroit, Indianapolis and Minneapolis to underperform in the coming years.

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Ranking the US’s largest warehousing markets

We think that major distribution hubs, where rents are high and availability is low, will underperform their neighbouring markets over the next few years. Tenants will increasingly look past the major hubs in favour of nearby markets with better affordability and availability. Of these markets, we think that rental growth prospects are even better in the sunbelt due to the positive economic effects of inward migration. As a result, we think that prospects for the next three years are strongest in Memphis, Atlanta, Dallas, Houston, Philadelphia and Riverside.

4 August 2022

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US Metro Employment (Jun.)

There was little evidence of any slowdown in June’s job figures, but the deep divisions in performance at the metro level remained. Dallas and Austin stood out on a range of comparisons, while Pittsburgh and L.A. continued to struggle.

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US Commercial Property Update

Offices set for a prolonged performance divide

The pandemic has heightened occupiers’ focus on the quality and green credentials of the space they occupy. This trend is set to impact on demand, with modern, well-configured buildings with green building certifications set to attract tenants at the expense of older stock. We expect investors to increasingly differentiate between these assets in the next few years.

23 June 2021

US Commercial Property Outlook

Major Office Markets Outlook (Q2 2021)

The start to the year has been in line with our expectations, meaning that falls in absorption and rents have generally accelerated in the six major metros. Owing to their relatively low rents and smaller shares of tech workers, we expect Washington D.C., Los Angeles and Chicago to be the top performers in our forecast period, registering average total returns of around 3.5%-4% p.a. On the other hand, New York City and San Francisco are set to be the worst performers, with rents falling by 13%-15% peak-to-trough and capital values ending the period 15%-17% lower than at the end of 2019. Total returns for those two metros will therefore be sub-2% p.a. in 2021-25. Boston will outperform those two hard-hit metros, but not by a great deal, producing returns of 2%-2.5% p.a., only a little below the US average.

18 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 15th 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
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