Expect huge divergence in performance between metros

We expect there will continue to be major divergence between the winning and losing metros. We think the major markets and tech-centric western markets will continue to fare poorly thanks to low office attendance rates and relatively weak office job growth. On the other hand, metros in the South, particularly Miami, Austin, Houston and Dallas, should see solid absorption over the forecast, helping to drive decent rental growth rates, of 2-3% p.a. This divergent outlook will also be reflected in cap rates, meaning the effect on capital values will be further enhanced, so that there will be significant differences between the best and worst performing metros. In fact, over the next five years, we think the range of price growth across the 17 metros could be as much as 30%-pts, with San Francisco values dropping by more than 15%, while those in Miami grow by nearly the same amount, with Dallas not too far behind.