US Commercial Property

Hub and spoke model not the future of offices

Many commentators are arguing that firms will shift towards a “hub and spoke” model following the pandemic. But we think the arguments for this approach are not as strong as they first seem, and that other strategies will dominate in the years ahead. On 14th January, economists from across our property services will be holding an online briefing about the long-term outlook for the commercial and residential sectors as part of our ‘The Future of Property’ series. Details and complimentary registration are here.
Sam Hall Assistant 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 Sam Hall

Commercial Property Lending (Mar.)

Commercial property debt to benefit from easing restrictions Commercial real estate debt fell for the second consecutive month in March. That likely reflects weak investment activity due to virus restrictions. But, as constraints continue to ease and investment activity gradually picks up, we expect commercial property lending will strengthen over the coming months.Total outstanding real estate debt held by commercial…

7 June 2021

US Housing Market Data Response

Mortgage Applications (May.)

Home purchase mortgage demand continued its downward trend in May and is now broadly in line with its pre-virus level. Easing credit conditions and the reopening of the economy will provide some support to home purchase demand in the coming months. But with record low inventory constraining sales and affordability stretched, we think that home purchase applications have a little further to fall this year.

2 June 2021

US Housing Market Data Response

Existing Home Sales (Apr.)

Existing home sales recorded another decline in April and are down 13% from the peak last October. Home sales are being constrained by record low inventory, which will continue to weigh on housing market activity in the coming months. And with mortgage rates set to rise to 4.0% by end-2021, we expect existing home sales will fall back to around 5.6m by the end of the year.

21 May 2021
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