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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

US Commercial Property Update

Are migration trends also driving industrial?

Data show a vast divergence in performance across the industrial sector over the last year. While some of the strength is consistent with that in the apartment and office sectors, driven by migration to the South, others have been supported by sector-specific factors.

23 November 2021

US Commercial Property Update

Structural changes weigh on offices more than retail

Google mobility data show a much fuller recovery in visitors returning to retail and recreation than to the workplace. This supports our view that structural changes will weigh on the office sector more than retail over the next few years, helping to make offices the worst performing sector in this period.

19 November 2021

US Commercial Property Chart Book

Office and retail sectors turning a corner

Economic growth slowed in Q3, but we expect it to pick up again in Q4. And with earnings growth and inflation at high levels, we see the Fed Funds Rate and 10-year bond yields rising over the next few years, reflecting the upturn in economic activity. Occupier demand appeared to turn a corner in the office sector, with absorption turning positive. Neighbourhood and community retail centres also posted their second consecutive quarter of positive absorption, meaning that vacancy fell in all sectors. Office and retail rents stabilised, and industrial and apartment rents accelerated, while incentives fell across the sectors. With the occupier market outlook improving, investment hit a new quarterly record in Q3, driven by a record quarter for apartments. Yields fell on the back of robust competition for assets, supporting rapid capital growth in industrial and apartments. While we expect those to be the best performers, we see office values stabilising and retail values returning to growth in the coming quarters.

18 November 2021

US Commercial Property Data Response

Commercial Property Lending (Oct.)

Outstanding real estate debt increased for the fifth consecutive month in October, driven by positive net lending in both residential and commercial real estate (CRE) sectors. We think that this reflects the rapid rebound in investment activity and an easing in credit conditions.

12 November 2021

US Commercial Property Update

Bank on South Florida for office rental growth

The faster-than-average recovery in financial sector employment in the Miami metro owes much to new office openings by banking and finance firms in the last 18 months. This has made Miami one of the best-performing office markets since the end of 2019 and we expect this to continue in the next year or two.

8 November 2021

US Commercial Property Update

REITs hint at upside risk for industrial and apartments

REIT pricing appears consistent with our view that retail values are nearing a turning point while office values have a bit further to fall. But a strong recovery in industrial and apartment REITs means that there is some upside risk to our capital value growth forecasts for 2021 and early 2022 in those sectors.

4 November 2021

US Commercial Property Data Response

US Metro Employment (Sep.)

While the 3m/3m growth rate was positive in all metros in September, employment fell in Baltimore, Detroit, Los Angeles and Pittsburgh on the month. That left employment in just Austin, Phoenix and Tampa above its pre-COVID levels, while the shortfalls in the six major metros remained larger than the 30-metro average.

3 November 2021

US Commercial Property Update

Making sense of the latest strong data on US real estate

Recent data releases and surveys show a booming commercial real estate market, particularly in the industrial and apartment sectors. While the level of prices is raising some eyebrows, we don’t see cause for concern yet. Nevertheless, we expect the rate of yield falls and capital growth to slow into 2022.

2 November 2021

US Commercial Property Data Response

RICS Commercial Market Survey (Q3)

Overall sentiment saw little change this quarter, but there was a notable reduction in office occupier demand and three-month rent expectations. The bigger picture is that, with no respondents viewing the market as cheap and other indicators having stabilised, there are signs that quarterly capital growth rates could have peaked.

28 October 2021

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