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Southern apartment rent growth unlikely to last forever

Over our five-year forecast, we expect in-migration to the South will see apartment rents there outgrow the national average. But further ahead, the greater ability of supply to respond in the South means that, even if that migration persists, we do not think that rents in those markets will necessarily outperform. Property Drop-In (19th May): What will rising interest rates mean for commercial property returns in the US, UK and Europe? Join our 20-minute briefing on the outlook for returns on Thursday. Register now.
Kiran Raichura Senior Property Economist
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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

US Commercial Property Data Response

Commercial Property Lending (May.)

Commercial real estate debt continued to grow at a decent pace in May, in line with the recent strength in investment activity. However, we expect a weaker economic backdrop to weigh on commercial property lending and investment later this year.

13 June 2022

More from Kiran Raichura

US Commercial Property Update

Forecast downgrades, but the sky is not about to fall

Rises in short-and-long interest rates and the likelihood of further increases over the next 12 months pose a threat to real estate prices. While some have suggested that this will not derail market momentum (and price gains), an array of valuation measures point to the sector already being overvalued. Accordingly, following an exceptionally strong start to the year, we see yield falls and price hikes slowing at the all-property level over the course of the year and even going into reverse in the apartments sector in H2. The result of those changes is that our forecasts for all-property total returns have been cut to around 10% in 2022 and 4% in 2023, from our previous forecast of 12% and 6%. UK Housing Drop-In (10th May 10:00 BST/17:00 SGT): Economists from our property team are hosting a 20-minute briefing to explain why we think UK house prices are heading for a fall – and how bad the fallout will be. Register now.

6 May 2022

US Commercial Property Data Response

ULI Consensus Forecast (Spring 2022)

Consensus forecasts for rents and total returns in 2022 and 2023 have been upgraded in all four sectors since the last survey. But those changes come with property pricing looking more stretched than at any time in the last decade, leaving us reviewing our forecasts with a view to downgrading.

4 May 2022

US Commercial Property Data Response

RICS Commercial Market Survey (Q1)

The RICS Q1 survey showed a further improvement in sentiment, driven by more confidence in prospects for the office and retail sectors. However, since the survey was conducted, the outlook for growth has softened and bond yields have risen markedly, which will dent the recovery in rents and capital values.

28 April 2022
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