US Commercial Property
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Major downgrade to office occupancy forecasts

On the back of deeply negative office absorption last year and the continued flow of announcements from firms cutting their office space, we have made major revisions to our demand forecasts across our five-year horizon. The total drop in occupied space that we are factoring in between 2021-25 is now around 5.5%, much closer to our work last year on the Future of Offices.
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

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

US Commercial Property Outlook

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

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
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