US Commercial Property

Downtown offices not losing out everywhere

National office data suggest that suburban office markets have significantly outperformed downtown offices since the onset of the pandemic. But metro-level data point to a more nuanced picture in which metros reliant on commuting have seen downtown areas hit hardest, but those with a decent share of reverse commuters have seen a more balanced picture. The next 12 months will help to determine whether this is a temporary or longer-term factor.
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

More from Kiran Raichura

US Commercial Property Update

Will remote working migrants drive office demand?

In-migration to southern metros with relatively low living costs and high desirability will be positive for office demand in those same metros. We think firms will be encouraged to set up offices in those locations given the growth in their skilled labour pools and the potential economic benefits. This means that, at the margin, rather than office-using jobs attracting talent, the location of the talent will attract firms.

4 October 2021

US Commercial Property Focus

Which apartment markets will benefit most from remote work?

We think that for the extra one million footloose American workers created by the pandemic, the cost of living has become far more important to their decision of where to live than in the past, while the “desirability” of a metro and its climate have also risen in importance. On the other hand, job opportunities and local earnings have fallen in significance. Our analysis points to several southern metros benefiting from this, with eight of our top-10 ranked metros situated in Florida, Texas and North Carolina. Conversely, the relative losers are dominated by more expensive northern coastal metros, as well as less “desirable” metros that still demand mid-range asking rents. In view of the wider interest, we are also sending this US Commercial Property Focus to clients of our US Housing Service

28 September 2021

US Commercial Property Outlook

Major Office Markets Outlook (Q3 2021)

With absorption of landlord-held office stock set to remain negative for the foreseeable future, we continue to expect vacancy rates to climb and rents to fall in all six major office markets over the next few years. That will be particularly pronounced in New York City and San Francisco, owing to more expensive rents and high shares of tech workers in both metros, as well as a large development pipeline in NYC. Boston will perform a little better thanks to its life sciences exposure, with average annual total returns of around 3% in the 2021-25 period. All three of those metros will underperform the national office average, whereas Chicago, LA and Washington D.C. are forecast to outperform. And there will be little to separate LA and D.C. over the next five years, with the former supported by a recovering film and TV sector and the latter helped by its large public sector exposure.

27 September 2021
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