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.