US Commercial Property

Major Apartment Markets Outlook (Q3 2021)

The apartment market is set for a stellar year. The reopening of cities is bringing vacancy rates down and pushing rents up, and strong investor demand has led to a sharp fall in yields. We expect national total returns of around 19% in 2021. The six major cities in this Outlook, which saw relatively large falls in capital values in 2020, will not quite match that this year. But most will catch-up in 2022 and beyond. Total returns in D.C. and Boston will outperform the national average of 7% p.a. from 2021-25, and L.A., NYC and Chicago will broadly match that return. The exception is San Francisco, where an exodus of footloose tech workers and high rents have cut demand. Even so, we still expect some recovery in demand, with rent growth turning positive and total returns of close to 5% p.a. from 2021-25. In view of the wider interest, we are also sending this US Commercial Property Outlook to clients of our US Housing service.
Matthew Pointon 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 Housing Market Update

Fall in first-time buyers will help boost inventory

Soaring house prices and tight credit conditions have pushed the first-time buyer share to a joint six-year low which, alongside strong housing starts, has arrested the decline in the for-sale home inventory. With foreclosures also resuming, we expect inventory will see further gains. That will help cool house price growth, but the improvement will be slow and the chance of an outright decline in prices is slim.

29 September 2021

US Housing Market Data Response

Case-Shiller/FHFA House Prices (Jul.)

Annual house price growth set another record in July as low mortgage rates, past stimulus payments and a tight market drove values higher. But there are tentative signs that the market is beginning to cool, and the recent rise in the 10-year Treasury yield means mortgage rates will soon increase and cut purchasing power. We expect annual growth will end the year at around 15%, and end-2022 at around 3%.

28 September 2021

US Housing Market Data Response

New Home Sales (Aug.)

An improvement in inventory helped new home sales rise for the second consecutive month in August. Admittedly, overall housing demand has eased in recent months and a rise in mortgage rates argues against a rebound this year. But a lack of inventory in the existing home market will push buyers to the new home market and help sales rise to around 800,000 annualised by the end of this year.

24 September 2021
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