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US Commercial Property

US Commercial Property Valuation Monitor

US Commercial Property Valuation Monitor

Biggest quarterly drop in property valuations on record

There was a huge deterioration in property valuations in Q1, reflecting the sharp rises in alternative asset yields recorded since the start of the year. The size of those yield rises mostly dwarfed the differences in property yield changes across sectors and metros in Q1, meaning that the drop in valuation scores was pretty consistent across the board. Looking ahead to Q2, further increases in alternative asset yields and our expectation of additional small falls in property yields point to another 40-50 bps worsening in valuations next quarter.

31 May 2022

US Commercial Property Valuation Monitor

Rising alternative asset yields stretch property valuations

There was little change to property valuations in Q4, with two major exceptions. Those were the industrial sector, which saw another decline in its valuation score, and a handful of Southern apartment markets, which dropped into the overvalued range. Both of those shifts seem reasonable though, given the pandemic-driven structural shifts in the US economy and in demographic trends. But the bigger concern is that sharp rises in alternative asset yields in Q1 will cause property valuations to look stretched, pushing all-property valuations well into overvalued territory.

25 February 2022

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
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US Commercial Property Valuation Monitor

Property valuations stabilise in Q2

Following a sharp deterioration in the previous quarter, property valuations held steady in Q2. But while changes so far in Q3 point to only a slight worsening in valuations, we expect Treasury yields will turn a corner and rise to 1.75% by end-2021, which will squeeze property valuations further. Movements in valuation scores were split between sectors this quarter, with a worsening in valuations leaving apartments and industrial looking fairly valued whereas a rise in our scores for office and retail made these sectors look relatively cheap. But the bigger picture remains the same, as we think that “average” office and retail assets will need to see further yield rises before they truly represent good value to investors.

US Commercial Property Valuation Monitor

Rising Treasury yields to squeeze valuations further

Following a sharp increase in Treasury yields, property valuations worsened for the second consecutive quarter in Q1. And we expect 10-Yr Treasury yields to resume their upward trend to reach 2.25% by end-2021, which will squeeze property valuations further. Widespread falls in valuation scores across the sectors mean that industrial and apartments now look fair value, with office and retail still looking undervalued. But given the weak rental growth prospects in those sectors, we think that office and retail assets may need to see further yield rises before they become sufficiently appealing to attract investors.

21 May 2021

US Commercial Property Valuation Monitor

Rising Treasury yields squeezing property valuations

On the back of rising Treasury yields, property valuations took their first hit in eight quarters during Q4. And, with Treasury yields climbing higher since, it is likely that valuation scores will fall further in Q1. Despite valuation scores declining in Q4, the retail, office and apartments sectors still look undervalued, whereas the industrial sector now appears fair value. However, retail and office income streams face a weak outlook over the next couple of years, with vacancy set to rise further and rental values to fall. In turn, office and retail yields may need to rise further to be considered good value.

26 February 2021

US Commercial Property Valuation Monitor

Retail and office pricing still unattractive

Property valuations improved for the seventh consecutive quarter in Q3, following another sharp fall in equities earnings yields. But this was the smallest rise in valuation scores this year and changes so far in Q4 point to a partial reversal.  All four sectors now look undervalued, but outside the industrial sector, the short-term outlook looks tough. And, while apartments may also weather the storm reasonably well, we think office and retail assets need to see further yield rises before they truly represent good value.

US Commercial Property Valuation Monitor

Valuations need to improve further to entice investors

Property valuations improved substantially in Q2, on the back of a huge 120 bps drop in equities earnings yields. However, while the office, retail and apartment sectors look undervalued on our valuation measure, with income streams likely to fall over the next 12 months as occupancy and rental values fall, we don’t think that this should be taken as a “buy” signal just yet. Indeed, we would expect valuations to improve further in the second half of the year, as the pricing correction continues and property yields climb further.

20 August 2020
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