The overriding story this quarter is that although weak demand and steady inventory growth in the next couple of years will push up vacancy in many metros, we still see asking rents growing solidly as firms compete up rents on new, high quality space. But there will still be substantial differentiation. We think Dallas rent growth will be head and shoulders above the other metros over 2022-26 at 3.5% p.a., but Atlanta, San Diego and Phoenix should also see rents grow by 2.5% p.a. At the bottom of the pack, the outlook for Houston remains poor and we also expect average annual rent growth of 1.5% or less in D.C., San Francisco and Chicago. (See Chart 1.) Combined with a net rise in yields in almost all metros, this means that we expect total returns to average just over 9% p.a. in 2023-26 in Atlanta and Dallas, but below 6% p.a. in Boston, LA and NYC, with the other three major markets not faring much better.
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