US Commercial Property
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Lower Treasury yield forecasts support property pricing

We have pulled back our expectations for Treasury yield rises this year and, to a lesser extent, next year. At the margin, this is positive for real estate pricing as it means that the property to bond yield gap will stay wider for longer. However, with the cut to the 2022 forecast being minor and no change to the end-2023 forecast, we don’t expect this to have a major impact on the outlook for property pricing.
Kiran Raichura Senior Property Economist
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Three reasons why Chicago will emerge a winner

Chicago’s office market will not escape the gloomy outlook caused by the shift to remote working. But we expect the low level of rents, the small share of jobs in the information sector, and a dwindling supply pipeline to limit rental declines over the next few years more so than in the other major metros.

17 September 2021

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Commercial Property Lending (Aug.)

All real estate sectors saw growth in outstanding debt for the second consecutive month in August. What’s more, the third consecutive monthly increase in commercial real estate debt of more than $10bn points to continued strong investment activity in the first half of Q3, which we expect to continue.

10 September 2021

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Retail on the cusp of a recovery

This quarter there are short-term upgrades to all four major sector forecasts for 2021 on the back of strong investor demand for assets, which is driving up prices. Those upgrades mean that returns in the industrial and apartments sectors will be exceptionally strong in 2021-2022 at around 15% p.a. and 13% p.a. respectively. But perhaps the bigger and more surprising story is that the retail sector is showing signs of turning a corner. As a result of the improved outlook, across the 2022-25 period, retail is our best-performing sector, led by the power centre and neighbourhood and community centre sub-sectors, with average returns in that period of 6.5%-7% p.a. Offices remain the weakest performers at a sector level, although we continue to think that Grade A stock will outperform the average.

10 September 2021

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Life science hubs set for a period of outperformance

The pandemic has accelerated growth in scientific research and development, prompting a boost to demand in key R&D clusters. While we don’t expect the current rates of growth to be sustained, we think the outperformance of this sector could persist for the next few years. This bodes well for a handful of markets, with Boston, San Francisco, San Diego and Raleigh-Durham the major beneficiaries.

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Offices set for a prolonged performance divide

The pandemic has heightened occupiers’ focus on the quality and green credentials of the space they occupy. This trend is set to impact on demand, with modern, well-configured buildings with green building certifications set to attract tenants at the expense of older stock. We expect investors to increasingly differentiate between these assets in the next few years.

23 June 2021

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Major Office Markets Outlook (Q2 2021)

The start to the year has been in line with our expectations, meaning that falls in absorption and rents have generally accelerated in the six major metros. Owing to their relatively low rents and smaller shares of tech workers, we expect Washington D.C., Los Angeles and Chicago to be the top performers in our forecast period, registering average total returns of around 3.5%-4% p.a. On the other hand, New York City and San Francisco are set to be the worst performers, with rents falling by 13%-15% peak-to-trough and capital values ending the period 15%-17% lower than at the end of 2019. Total returns for those two metros will therefore be sub-2% p.a. in 2021-25. Boston will outperform those two hard-hit metros, but not by a great deal, producing returns of 2%-2.5% p.a., only a little below the US average.

18 June 2021
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