US Commercial Property

Comparing office occupancy changes across US metros

Combining the change in leased space with the rise in sublease availability gives a more complete picture of the change in demand across office metros since the onset of the pandemic. This gives a more intuitive match between demand patterns and rental trends that we have seen so far. This Update forms part of a set of publications that extend our existing office and apartment market analysis beyond the six major metros that we currently forecast. Over the coming weeks, we will be expanding our coverage to include an additional 11 US metros in our regular quarterly analysis and forecasts. That will include the release of a new metro focused Chartbook and enlarged office and apartment metro Outlooks.
Kiran Raichura Senior Property Economist
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US Commercial Property Data Response

NCREIF Property Index (Q4)

The NCREIF index saw its strongest ever quarterly price appreciation in Q4, with values up by 5.1% q/q, driving a quarterly return of 6.2%. That took annual returns to 17.7%, led by industrial, where returns exceeded 40%. Meanwhile, improvements in the retail and hotel sectors point to better years ahead in 2022, but there are signs that returns in apartments and offices may be topping out.

26 January 2022

US Commercial Property Update

Surging incentives reveal weakness in the office market

Office incentives packages rose to unprecedented levels in 2021, which supports our view that market conditions are weaker than asking rents suggest. Given our expectation that vacancy will remain elevated in the coming years, incentives are likely to diminish only gradually.

19 January 2022

US Commercial Property Data Response

Commercial Property Lending (Dec.)

Commercial real estate debt ended 2021 with its largest monthly increase since the onset of the pandemic. Against a backdrop of strong investment activity, we expect commercial property lending to have a strong start to 2022.

17 January 2022

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US Commercial Property Update

Key calls for US commercial real estate in 2022

The US economy is set to slow this year as elevated inflation and higher interest rates squeeze spending. Nevertheless, at the all-property level, we expect rental growth of around 3% y/y and NOI yields to see another large fall, driving double-digit total returns. Industrial will again be at the top of the table, with returns reaching 20%, but the three other major sectors should all see returns of close to 10%. We also expect another year of outperformance for the cheaper Sunbelt markets.

6 January 2022

US Commercial Property Outlook

Major Office Markets Outlook (Q4 2021)

Our stronger national office forecast this quarter mean upgrades to all six major markets. The largest of those uplifts is in Boston, which has seen a sharp rise up the rankings and where we expect total returns to hit double-digits in 2021 and 2022 before slowing to around 6% in 2023. With average annual capital growth of 1.5% over the five-year forecast, L.A. will not be far behind, while Chicago and Washington D.C. are forecast to occupy the middle slots. A notable upgrade to San Francisco means that its performance is now forecast to be similar to those two markets, leaving New York City trailing behind with total returns of around 4.5% p.a. across the forecast period. While the other five major markets are now forecast to outperform the national average with the addition of 2026 to our forecast period, NYC is forecast to underperform with its capital values still 5%-6% below their end-2019 levels by the end of 2026.

23 December 2021

US Commercial Property Update

US to outperform in 2022 before rate rises curb returns

The rapid bounce-back in the US economy along with still-loose monetary policy will drive continued strong performance in real estate in 2022, when we expect returns to exceed 12%. That would see the US outperform the UK and euro-zone by 5%-pts and 3%-pts respectively. We then expect returns to fall back to around 5% in 2023, roughly matching the other two markets. But with interest rate rises likely to impact US valuations sooner, we forecast the US to underperform by 1.5%-2%-pts p.a. in 2024-26. In view of the wider interest, we are also sending this US Commercial Property Update to clients of our European and UK Commercial Property Services. Note: Central Bank Drop-In – The Fed, ECB and BoE are just some of the key central bank decisions expected in this packed week of meetings. Neil Shearing and a special panel of our chief economists will sift through the outcomes on Thursday, 16th December at 11:00 ET/16:00 GMT and discuss the monetary policy outlook for 2022.

15 December 2021
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