US Commercial Property

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.
Kiran Raichura Senior Property Economist
Continue reading

More from US Commercial Property

US Commercial Property Data Response

NCREIF Property Index (Q4)

The NCREIF index saw its strongest ever quarterly price appreciation in Q4, with values up by 5.1% q/q, driving a quarterly return of 6.2%. That took annual returns to 17.7%, led by industrial, where returns exceeded 40%. Meanwhile, improvements in the retail and hotel sectors point to better years ahead in 2022, but there are signs that returns in apartments and offices may be topping out.

26 January 2022

US Commercial Property Update

Surging incentives reveal weakness in the office market

Office incentives packages rose to unprecedented levels in 2021, which supports our view that market conditions are weaker than asking rents suggest. Given our expectation that vacancy will remain elevated in the coming years, incentives are likely to diminish only gradually.

19 January 2022

US Commercial Property Data Response

Commercial Property Lending (Dec.)

Commercial real estate debt ended 2021 with its largest monthly increase since the onset of the pandemic. Against a backdrop of strong investment activity, we expect commercial property lending to have a strong start to 2022.

17 January 2022

More from Kiran Raichura

US Commercial Property Update

Are migration trends also driving industrial?

Data show a vast divergence in performance across the industrial sector over the last year. While some of the strength is consistent with that in the apartment and office sectors, driven by migration to the South, others have been supported by sector-specific factors.

23 November 2021

US Commercial Property Chart Book

Office and retail sectors turning a corner

Economic growth slowed in Q3, but we expect it to pick up again in Q4. And with earnings growth and inflation at high levels, we see the Fed Funds Rate and 10-year bond yields rising over the next few years, reflecting the upturn in economic activity. Occupier demand appeared to turn a corner in the office sector, with absorption turning positive. Neighbourhood and community retail centres also posted their second consecutive quarter of positive absorption, meaning that vacancy fell in all sectors. Office and retail rents stabilised, and industrial and apartment rents accelerated, while incentives fell across the sectors. With the occupier market outlook improving, investment hit a new quarterly record in Q3, driven by a record quarter for apartments. Yields fell on the back of robust competition for assets, supporting rapid capital growth in industrial and apartments. While we expect those to be the best performers, we see office values stabilising and retail values returning to growth in the coming quarters.

18 November 2021

US Commercial Property Update

Bank on South Florida for office rental growth

The faster-than-average recovery in financial sector employment in the Miami metro owes much to new office openings by banking and finance firms in the last 18 months. This has made Miami one of the best-performing office markets since the end of 2019 and we expect this to continue in the next year or two.

8 November 2021
↑ Back to top