Value falls of 25% still to come in worst-hit markets

Our latest office metro forecasts highlight a continued divergence between southern metros and the western and major markets. That difference in performance will be driven by a smaller hit to demand from remote work in the South. Higher office attendance in southern metros means that firms are cutting less space than those based in the western and major markets. This underpins smaller vacancy increases, better rental growth and less steep yield rises in southern metros. Expensive west coast markets, which also have both a high share of tech jobs and long commutes are the worst-hit. We think values in Seattle and San Francisco are both set to fall by another 25% at least from end-2023 levels. (See Chart 1.) Austin is the major southern exception, due to its huge recent and forthcoming pipeline of new office inventory. But, further ahead, it will join the other southern metros in enjoying a decent recovery and posting average annual returns of around 9% p.a. in 2026-28, which would be much stronger than the 6% p.a. we are predicting in San Diego and San Francisco.

Note: We’ll be covering our views on residential market winners and losers in both the for-sale and rental markets in a Drop-In Tuesday 16th April 1100 EST/1600 BST. Register here for the 20-minute session.