We expect a surge in completions and a slowdown in employment growth to push vacancy substantially higher in all markets over the next few years. That will slam the brakes on rental growth, causing an outright fall in several of the major markets as well as a handful in the West. We think rent prospects remain brightest in southern markets such as Atlanta, Austin and Dallas as continued inward migration supports apartment demand. Those relative rent prospects will translate to yield shifts, with markets where we expect the weakest rental growth set to also see the largest yield rises in the next couple of years as pricing adjusts to the higher rate environment. As a result of those yield rises, capital values will see a net fall over the five year period everywhere but Dallas. In San Francisco, Seattle and Washington D.C., prices could drop by around 25% over the next couple of years, leaving values 15%-20% lower by 2027. That will bring average annual total returns of minus 1% in San Francisco over the next five years, while the southern markets will generally lead the pack, with Dallas returning close to 5% p.a. over 2023-27.
In view of the wider interest we are also sending this US Commercial Property Apartment Metros Outlook to clients of our US Housing Market Service.
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