US Commercial Property
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How pandemic changes will affect US metros

Americans are returning to cities, but the return to the office has been much slower. We see suburban areas being net winners in the residential and retail sectors, although the picture for downtown versus suburban offices is less obvious than the national data currently suggest. What is clear is that the winning metros will tend to be cheaper, and in mostly southern states. These will attract newly footloose workers, which will directly support the residential markets in those metros and will also have a positive effect on demand for office, retail, leisure and industrial space. In view of the wider interest, we are also sending this US Commercial Property Focus to clients of our US Housing service
Kiran Raichura Senior Property Economist
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Against both our proprietary in-house valuations and a more traditional fair value analysis, real estate looks cheap despite recent yield falls. Indeed, our analysis suggests yields could fall by 30bps by end-2023 and still be fair value. But as this would leave property looking overvalued by 2024, we think the all-property yield is likely to fall by more like 15bps in the next 12-18 months. As apartment valuations will come under pressure first, yield rises in that sector are likely to start by early 2023.

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Are migration trends also driving industrial?

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Downtown offices not losing out everywhere

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Will remote working migrants drive office demand?

In-migration to southern metros with relatively low living costs and high desirability will be positive for office demand in those same metros. We think firms will be encouraged to set up offices in those locations given the growth in their skilled labour pools and the potential economic benefits. This means that, at the margin, rather than office-using jobs attracting talent, the location of the talent will attract firms.

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Which apartment markets will benefit most from remote work?

We think that for the extra one million footloose American workers created by the pandemic, the cost of living has become far more important to their decision of where to live than in the past, while the “desirability” of a metro and its climate have also risen in importance. On the other hand, job opportunities and local earnings have fallen in significance. Our analysis points to several southern metros benefiting from this, with eight of our top-10 ranked metros situated in Florida, Texas and North Carolina. Conversely, the relative losers are dominated by more expensive northern coastal metros, as well as less “desirable” metros that still demand mid-range asking rents. In view of the wider interest, we are also sending this US Commercial Property Focus to clients of our US Housing Service

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