US Commercial Property

Major Office Markets Outlook (Q2 2020)

With the largest fall in occupier demand expected in New York City and San Francisco, and completions staying relatively strong in Los Angeles and SF, we expect these cities to see the largest rental declines and yield rises this year. On the other hand, demand should hold up better in Boston, Chicago and Washington D.C., limiting capital value falls in those cities to end-2021 to less than 2. At 4.5% p.a. and 3.5% p.a. respectively, we expect D.C. and Chicago to produce the best total returns in the next two years.
Kiran Raichura Senior Property Economist
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US Commercial Property Data Response

US Metro Employment (Oct.)

The easing of the Delta wave of infections in the South boosted leisure & hospitality hiring in October. Meanwhile, office-based jobs rose in all 30 metros, following widespread declines in September. That left office-based employment above its pre-COVID level in 17 metros.

2 December 2021

US Commercial Property Update

Fair value analysis points to one more year of yield falls

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.

1 December 2021

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

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US Commercial Property Data Response

US Metro Employment (Apr.)

Employment growth in the three-months to April was positive in all 30 of the largest metros. However, the rate of growth remains slow as labour shortages weigh on the jobs recovery. As a result, total employment in major metros such as NYC, Los Angeles and San Francisco is still down by 10% from the pre-virus peak, while Boston and Chicago have not fared much better.

2 June 2021

US Commercial Property Update

Austin and Seattle set to slide down the office rankings

Although office values have held up well in tech hubs such as Seattle and Austin, they have also seen some of the largest falls in occupier demand. Further substantial reductions in floorspace by tech companies will cause vacancy in these markets to rise further. As a result, we expect rents to be some of the hardest-hit, denting capital values and causing these metros to slide down the performance rankings.

1 June 2021

US Commercial Property Update

How far could industrial yields fall?

Industrial yields look likely to reach our end-2021 forecasts by mid-year, leading us to re-evaluate the outlook for pricing. Although gains in rents and capital values are driving increased development, we think investors’ willingness to pay for solid medium-term NOI prospects will support strong demand. The result is that we think yields will fall below 3.8% this year and trend lower still in 2022.

26 May 2021
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