Following a surge last year, rental growth at the national level is set to slow over the next couple of years as demand falls back and affordability constraints bite. Alongside a gradual rise in yields, that will bring total returns down from 19% in 2021 to around 5% p.a. from 2022 to 2026. But some metros, primarily those in the South, will perform significantly better. Even after recent strong rental growth, those metros are relatively cheap, which is attracting newly footloose workers who can now work from anywhere. For example, we think Atlanta occupies a sweet spot of being a relatively affordable and desirable place to live, helped by a recent influx of tech and life sciences firms. Total returns there will reach just under 8% p.a. from 2022-26. At the other end of the spectrum, expensive metros in the West, such as San Francisco, San Jose and Seattle will do less well. Rising crime in some of those metros is also cutting demand, and the high concentration of mobile tech workers has enabled many to leave for cheaper, safer metros. San Francisco will therefore underperform with returns of around 2.7% p.a. over the next five years.
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