Major Office Markets Outlook (Q1 2021)

There are forecast downgrades across the board this quarter, owing to the changes to our occupier demand expectations at the sector level. The markets broadly split into three pairs. New York City and San Francisco could see capital values fall by another 25%, meaning that total returns average around 0% p.a. over the five-year horizon. Boston and Chicago will fare better but will still see above-average occupancy falls, which will hit rents and push capital values down by 15%, close to the US office average. But we think that Los Angeles and D.C. will outperform the other markets and the national average, with total returns of 3%-3.5% p.a. in 2021-25, thanks to cumulative rent falls of under 5%. It is hard to classify those markets as winners per se, given the low level of returns that we are forecasting, but given the very weak outlook for the sector, that level of returns could look very good versus most other markets.