US Commercial Property

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
Kiran Raichura Senior Property Economist
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US Commercial Property Valuation Monitor

Industrial overvalued, but supported by rental outlook

Rising equity earnings yields and government bond yields squeezed property valuations in Q3. While pricing still looks reasonable at the all-property level, the industrial sector is starting to look overvalued on a historical basis, with yield falls showing no sign of slowing. At this stage, we think that industrial valuations are justified by the sector’s solid prospects for rental growth. But we expect 10-Year Treasury yields will rise to 1.6% by end-2021 and 2.25% by end-2022, which will squeeze property valuations further.

24 November 2021

US Commercial Property Update

Are migration trends also driving industrial?

Data show a vast divergence in performance across the industrial sector over the last year. While some of the strength is consistent with that in the apartment and office sectors, driven by migration to the South, others have been supported by sector-specific factors.

23 November 2021

US Commercial Property Update

Structural changes weigh on offices more than retail

Google mobility data show a much fuller recovery in visitors returning to retail and recreation than to the workplace. This supports our view that structural changes will weigh on the office sector more than retail over the next few years, helping to make offices the worst performing sector in this period.

19 November 2021

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US Commercial Property Outlook

Major Office Markets Outlook (Q3 2021)

With absorption of landlord-held office stock set to remain negative for the foreseeable future, we continue to expect vacancy rates to climb and rents to fall in all six major office markets over the next few years. That will be particularly pronounced in New York City and San Francisco, owing to more expensive rents and high shares of tech workers in both metros, as well as a large development pipeline in NYC. Boston will perform a little better thanks to its life sciences exposure, with average annual total returns of around 3% in the 2021-25 period. All three of those metros will underperform the national office average, whereas Chicago, LA and Washington D.C. are forecast to outperform. And there will be little to separate LA and D.C. over the next five years, with the former supported by a recovering film and TV sector and the latter helped by its large public sector exposure.

27 September 2021

US Commercial Property Data Response

Commercial Property Lending (Aug.)

All real estate sectors saw growth in outstanding debt for the second consecutive month in August. What’s more, the third consecutive monthly increase in commercial real estate debt of more than $10bn points to continued strong investment activity in the first half of Q3, which we expect to continue.

10 September 2021

US Commercial Property Outlook

Retail on the cusp of a recovery

This quarter there are short-term upgrades to all four major sector forecasts for 2021 on the back of strong investor demand for assets, which is driving up prices. Those upgrades mean that returns in the industrial and apartments sectors will be exceptionally strong in 2021-2022 at around 15% p.a. and 13% p.a. respectively. But perhaps the bigger and more surprising story is that the retail sector is showing signs of turning a corner. As a result of the improved outlook, across the 2022-25 period, retail is our best-performing sector, led by the power centre and neighbourhood and community centre sub-sectors, with average returns in that period of 6.5%-7% p.a. Offices remain the weakest performers at a sector level, although we continue to think that Grade A stock will outperform the average.

10 September 2021
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