Capital value projections upgraded for the next 12 months : RICS Global Commercial Property Monitor, Q3 2021, North America
- Multifamily and industrial sectors are anchoring increasing confidence
- Increasing occupier demand is bolstering investor confidence
- Alternative asset sectors are generating major interest
- Climate and sustainability are increasingly becoming factors in investment decisions
The Q3 2021 GCPM results across North America show further improvement in forward-looking indicators, with respondents noting slightly greater capital value and rental growth than previously projected—encouraging signs for the regional real estate market. Nevertheless, current conditions remain somewhat mixed, with office demand appearing to falter within the United States and retail continuing to lag the broader recovery across the commercial real estate market.
Sentiment is improving noticeably across Canada during Q3, now showing positive outlooks in aggregate, while investor demand growth accelerated within the industrial sector, in particular. Also encouraging, the previously negative trend across retail and offices has softened. For retail, occupier demand had fallen sharply for seven straight quarters prior to the Q3 results, with sentiment now approximately even, which is consistent with a stable backdrop.
Across the United States, less has changed in the past quarter, with sentiment remaining just on the positive side of neutral. The US shows a broadly steady outlook, though this continues to mask divergence at the sector level. Where industrial demand continues to rise at a near record pace, the office and retail sectors continue to return subdued net balances, though less so than during the pandemic
Notably, almost two thirds of respondents across North America believe that investors are increasingly considering climate risk factors to be important to some extent when making business decisions. While there remains some way to go before this is a prominent concern for all occupiers and investors, the shift is occurring for real estate and capital decisions.
Strong projections for industrial and multifamily values
For the coming twelve months, respondents across both Canada and the United States are expecting robust growth in prime industrial capital values. Similarly, secondary industrial assets are also projected to post solid gains, albeit not quite as sharp as their prime counterparts.
On the same basis, expectations are modestly positive regarding prime office values, though the outlook is flat to marginally negative for secondary market properties. Interestingly in Canada, prime retail capital value expectations moved into positive territory for the first time since Q4 2019, while projections are more or less stable across the United States. Nevertheless, for secondary market retail values, respondents anticipate a slightly negative trend remaining in place over the next year.
In the multifamily sector, there is a strong outlook for capital values right across North America, with contributors based in the United States in particular further upgrading projections relative to Q2. Moreover, several alternative asset classes also appear to be in demand currently, with prices anticipated to be pushed higher for data centers, aged care facilities and student housing over the year to come. In Canada, hotels are now seen posting a modest recovery in capital values over the next 12 months, while projections are flat across the United States.
Ann Gray, President-Elect, RICS, commented, “The latest survey feedback in North America shows cautious optimism—and amid the pandemic and economic recovery, that is highly encouraging. While many questions remain for investors and occupiers alike, including the need for more pricing clarity, there is an increasing velocity of leasing, capital and investment activity driving the market forward, though with the understanding that the landscape today is a far different one with regard to sustainability and consumer demands than the one in Q1 2019. The real estate market overall is seeing opportunities to create more resilience both in terms of the environment and the market.”
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