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US Commercial Property

US Commercial Property Data Response

Commercial Property Lending (Jul.)

CRE lending was again exceptionally strong in July, outpacing even the gains seen in recent months. But with investment transaction totals softening in Q2 and our expectation of a further slowdown in activity in H2, we do not expect the strength of recent months’ net lending to persist much longer.

15 August 2022

UK Commercial Property Update

Global trends point to a more difficult decade ahead

Commercial property wasn’t initially hit by the worsening in economic conditions at the turn of the year, but there are now growing signs of anxiety. Not only that, but even if the economic gloom is short lived and any downturn is mild, we expect structural factors to make for a listless global real estate recovery. In view of the wider interest, we are also sending this UK Commercial Property Update to clients of our European and US Commercial Property Services.

12 August 2022

US Commercial Property Update

The six major markets will not be the only losers

Pandemic-accelerated migration patterns were already driving outperformance in the southern states. But they have also brought the poor performance of weaker markets to the fore. With those structural changes likely to continue to play out over the next few years, we expect metros such as Detroit, Indianapolis and Minneapolis to underperform in the coming years.

10 August 2022

Our view

The largest quarterly deterioration in property valuations on record in Q1 has driven a downward revision in our forecasts for the next few years, with property yield rises now likely to occur sooner than before. While we are not forecasting an Armageddon scenario, we now expect all-property returns this year to slow to around 8.5%, before dropping to zero in 2023. That includes a c.6-7% peak-to-trough fall in capital values. There will still be relative winners, where rental growth is strongest, predominantly in southern metros , but we now expect the next few years to be relatively poor ones for US real estate.

Latest Outlook

US Commercial Property Outlook

Southern metros to outperform

Since the release of our previous Apartment Metro Outlook three months ago the interest rate environment has become more negative for real estate, and we now expect yields to rise in many metros this year and to see further increases in 2023. But offsetting that to some extent has been stronger than expected rental growth. Overall, that leaves total returns from 2022 to 2026 in most metros more-or-less unchanged from our last forecast. We still expect the South to outperform, as relatively cheap rents attract newly footloose workers and encourage firms to expand, driving strong employment growth. Miami, Austin and Atlanta will all see total returns of close to 8% p.a. from 2022-26. As will Phoenix, which is benefitting from the same factors boosting demand. By contrast San Francisco will only see returns of just over 1% p.a., as its high level of rents, large proportion of mobile workers and rising perceptions of crime keep demand subdued. Also underperforming is Chicago, which has one of the worst employment outlooks. In view of the wider interest, we are also sending this US Commercial Property Outlook to clients of our US Housing Service.

12 July 2022