Office Metro Outlook (Q1 2022)

We expect the best performing office markets over the next five years to be in Southern and Western metros, meaning that almost all the new additions to our forecast this quarter will outperform the six major markets. Houston is the major exception, thanks largely to persistently high vacancy rates even prior to the pandemic and a relatively soft outlook for demand in the next few years. But we still expect NYC to be the weakest performer of all 17 metros as firms continue to put space back onto the market and as the substantial pipeline keeps vacancy rising and weighs on asking rents. More positively, we think that over 2022-24 asking rents will rise by at least 2% p.a. in five markets – Atlanta, Dallas, Miami, San Diego and San Jose. As a result, those same five metros are forecast to see the strongest rise in capital values over the next three and five years, led by Atlanta and San Jose, which should both see capital values climb by 10% or more by the end of 2024. That will mean that average annual total returns in Atlanta and San Jose exceed 8% p.a. in 2022-24, both more than double the measly 4% p.a. we are forecasting for NYC and well above our US national forecast of 6% p.a. over the same period.