US Commercial Property Outlook: Returns will be weighed down by “new normal” for bond yields

Our new forecasts have been compiled in the most uncertain geoeconomic environment for a long time. But our firmly below-consensus expectations for US CRE are led by our view that nearly three years since the market peak, appraisals still do not reflect true market values. That means we expect further cap rate rises this year and next, totaling about 50-55 bps. As a result, we are projecting negative total returns for this year and forecast five-year average returns of only just over 5% p.a. Within those numbers, we continue to forecast the best total returns in the retail sector, at around 4.5% this year and 7.5% p.a. over 2025-29. Meanwhile, although we expect offices to again see the worst returns in 2025, it is industrial – which we think is most overvalued – where we expect the weakest performance over 2025-29.