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Lessons from 2021

2021 proved a challenging year to forecast commercial property markets. Indeed, we underestimated the speed and size of the bounce back in performance, albeit by less than the consensus. But there are lessons to be learned from last year’s experience, so before we look forward to 2022 it is helpful to reflect on where we were right and wrong in 2021 and why.
Sam Hall Assistant Property Economist
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US Commercial Property Data Response

US Metro Employment (May)

Employment growth slowed last month, but remained above its historic averages. The big gainer in May was Dallas, which recorded the strongest 3m/3m growth in both total and office-based employment, closing the gap with Austin, where growth has slowed in recent months. Looking ahead, we still see growth in the south outstripping the north in the remainder of this year. Real Estate Drop-In (6th July, 2022): Join our US Commercial Property team for this 20-minute briefing on why we think this is the market top – and how far we expect returns to fall. Register now.

29 June 2022

US Commercial Property Update

Calling the top for US commercial real estate

Indicators that include a recently released investor sentiment survey and a sharp fall in REIT prices since the start of the year support our updated view that capital values will go into reverse in H2. In total, our latest forecasts call for a 6%-8% correction at the all-property level over the next couple of years, which would be a little less than implied by the falls that we have seen so far in US REITS.

24 June 2022

US Commercial Property Outlook

All-property returns to fall to zero next year as values slide

The dramatic shift in the interest rate environment over the first half of the year means that we have brought forward (and increased) our forecasts for yield rises. Property valuations now look as bad as they did in 2007, and with the 10-Year Treasury yield moving toward 4% by year-end, something has to give. We now expect property yields to climb by a cumulative 40-50 bps over the next few years. This will hit all sectors, although the elevated level of retail yields at present may spare them the worst, particularly in terms of the impact on capital values. All-property returns are still forecast to be 8% this year, but they will then drop to 0% next year and just 2.5% in 2024. We are still forecasting industrial returns of 18% this year. But beyond that the sector will be a major drag on returns in 2023-24, meaning it would go from hero to zero in the space of a year.

21 June 2022

More from Sam Hall

US Housing Market Data Response

Existing Home Sales (Nov.)

Existing home sales continued to climb higher in November, leaving sales just short of their peak last year. But we expect a tight inventory and stretched affordability as mortgage rates rise to weigh on sales over the next six months, causing them to fall back to around 5.80m by mid-2022.

22 December 2021

US Housing Market Data Response

Housing Starts (Nov.)

Single-family housing starts rebounded in November, following a weak four months. While strong new home demand, limited inventory and surging house prices will incentivise builders to increase construction, the recent surge in lumber prices will add to the supply-side challenges weighing on starts.

16 December 2021

US Commercial Property Data Response

Commercial Property Lending (Nov.)

Commercial real estate debt recorded its largest gain in November since the onset of the pandemic. And with investment volumes on track for a record-breaking year, we expect lending activity to remain elevated in the coming months.

13 December 2021
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