Real Estate
Will Property Fundamentals Continue to Improve?
Is the U.S. property market well-positioned in the new post-pandemic economic cycle? The Barings Real Estate team weighs in.
Economy
- The U.S. economy posted a strong recovery in 2021, with realized GDP growth advancing 5.7% in the year.
- Both the official unemployment rate (U-3) as well as the more comprehensive measure of unemployment (U-6) are inching closer to their pre-pandemic levels.
- Persistent inflation upward of 7% has turned Fed monetary policy hawkish with consensus expectations of at least three rate hikes for this year. Nevertheless, the positive momentum in employment, wage growth and sentiment bodes well for continued occupier demand.
- The current Omicron wave is expected to weigh on labor supply/demand dynamics early on in the year—but a subsequent spring employment rebound is forecast to make up for the early lag by adding 3.5–4.0 million jobs in the balance of the year, bringing employment closer to a full recovery.
Property Markets
- The U.S. property market recovery strengthened despite the recent headwinds posed by Omicron.
- Occupier demand is gaining momentum and fundamentals are improving across all major property types, including office, where overall vacancy in the fourth quarter declined for the first time since the onset of the pandemic.
- Capital markets activity remained robust in 2021 with aggregate deal volume totaling $809 billion, a record high and exceeding the prior high watermark by just over a third. While in-favor sectors such as apartments and industrial led aggregate deal volume, appetite for previously out-of-favor sectors such as office and retail also improved during the year.
- Pricing remains healthy with the national Real Capital Analytics Commercial Property Price Indices gaining 23% on a YoY basis—with YoY price appreciation for all major property types in double-digit territory once again.
