US Commercial Property
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Does COVID-19 mean the end of real estate’s bull run?

Commercial property has outperformed both Treasuries and equities in the last two decades, but the fast-forward of structural change caused by COVID-19 will mean that in the next decade property is again likely to underperform equities.
Kiran Raichura Senior Property Economist
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US Commercial Property Data Response

Commercial Property Lending (May.)

Commercial real estate debt held by banks grew again in May. But while we expect growth to accelerate as the year progresses and confidence returns, investor caution toward the office and retail sectors will ultimately limit the pace of the recovery.

11 June 2021

US Commercial Property Outlook

Substantial upgrades to industrial and apartments this year

The economic recovery continues in earnest, but this is raising questions about quite how transitory the current high rates of inflation are. We think that core inflation will stay elevated, which will force the Fed to push up rates in late 2023, with bond yields climbing to 2.5% in the meantime. Nevertheless, given the strong prospects for NOI growth in the industrial and apartments sectors, we think these still look fair value. Returns there should average 7% p.a. and 6% p.a. respectively in 2021-25. But the reverse is true for retail and offices. Although yields remain elevated in those sectors, we see occupancy and rents falling further in the next two years, leaving them looking expensive at current pricing. We therefore think yields need to climb further and capital values fall further before they look attractive. As a result, we are forecasting average annual returns of just 4.5% p.a. for retail and 2.5% p.a. for offices.  

Drop-In: US Commercial Property (Tuesday 15th June, 1200 EST) Andrew Burrell and Kiran Raichura will be discussing the upgrades to our industrial sector forecasts and taking your questions on any other issues arising from our latest US Commercial Property Outlook. Register here.

10 June 2021

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

More from Kiran Raichura

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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