North America

United States

Commercial Property Lending (May.)

Commercial real estate debt held by banks grew again in May. But while we expect growth to accelerate as the year progresses and confidence returns, investor caution toward the office and retail sectors will ultimately limit the pace of the recovery.

11 June 2021

Is US households’ cult of equity a bad omen for stocks?

The record allocation of US households (and non-profit organisations) to equites chimes with the broader evidence that the valuation of the US stock market is high by historical standards. With that in mind, while we are not forecasting a crash any time soon, we do anticipate that returns over the next decade will be substantially lower than they have been over the last one.

11 June 2021

Trying to make sense of the rally in Treasuries

The recent decline in US Treasury yields in the face of very strong inflation numbers and broader signs of building price pressures is surprising, and we doubt that it will last.

11 June 2021
Latest Publications

Lasting price pressures building

The continued surge in prices last month was again mostly concentrated in sectors reopening or facing intense supply constraints, which allows the Fed to stick with its “largely transitory” story for now. But with signs of cyclical price pressures building and the extremely strong job openings and quits figures pointing to stronger wage pressures, we believe the Fed will eventually have to acknowledge that inflation will remain elevated for much longer.

Why we expect the US dollar to reverse course

Having fallen back to near its post-pandemic lows, we don’t think that the decline in the US dollar will continue. In this Focus, we explain why instead we expect the dollar to strengthen against most currencies over the next 12-18 months.

We don’t expect higher inflation to derail US equities

While we think that inflation in the US will prove more persistent than both the Fed and investors appear to anticipate, we still expect the S&P 500 to make some further gains over the next couple of years.

Substantial upgrades to industrial and apartments this year

The economic recovery continues in earnest, but this is raising questions about quite how transitory the current high rates of inflation are. We think that core inflation will stay elevated, which will force the Fed to push up rates in late 2023, with bond yields climbing to 2.5% in the meantime. Nevertheless, given the strong prospects for NOI growth in the industrial and apartments sectors, we think these still look fair value. Returns there should average 7% p.a. and 6% p.a. respectively in 2021-25. But the reverse is true for retail and offices. Although yields remain elevated in those sectors, we see occupancy and rents falling further in the next two years, leaving them looking expensive at current pricing. We therefore think yields need to climb further and capital values fall further before they look attractive. As a result, we are forecasting average annual returns of just 4.5% p.a. for retail and 2.5% p.a. for offices.  

Drop-In: US Commercial Property (Tuesday 15th June, 1200 EST) Andrew Burrell and Kiran Raichura will be discussing the upgrades to our industrial sector forecasts and taking your questions on any other issues arising from our latest US Commercial Property Outlook. Register here.

What’s driving the surge in rent expectations?

Consumer expectations of rental growth have surged to record highs over the past couple of months. But that appears to reflect optimism around the housing market in general, rather than the rental sector in particular. We therefore doubt actual rental growth will follow expectations to record highs. That said, a rise in demand as cities and offices reopen means rental growth will recover, albeit to a fairly modest 2% y/y by the end of the year.

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