Real Estate

U.S. Property Fundamentals Steady Amid Heightened Uncertainty

August 2022 – 6 min read

While tighter monetary conditions weigh on economic growth and inflation, U.S. property fundamentals remain stable—and secular demand trends continue to drive value creation over the long term. The Barings Real Estate team discusses.

Economy
  • U.S. real estate fundamentals remained buoyant over the second quarter even as the uncertain economic backdrop continued to deteriorate.
  • The struggle of central banks, including the Fed, to contain accelerating inflation is now the focus of monetary policy.
  • The probability of recession is the highest it has been since March 2020. Real GDP declined by 0.9% at a seasonally adjusted annual rate marking consecutive quarters of contraction over the first half of 2022.
  • Despite the rise in debt costs and the implications for levered property values, secular demand trends remain drivers of value creation over the long term.
Property Market
  • Second quarter property sales volume rose by 17% over the prior year. Though bid-ask spreads have widened between buyers and sellers, there is still meaningful transactional liquidity.
  • Private property prices gained 18.5% YoY as of June—but the exceptional annual appreciation trend reflects more the investor confidence of the second half of last year than current sentiment, which is markedly less optimistic.
  • Given the upward pressure on property cap rates exerted by tightening monetary policy, uncertainty around pricing will persist, which could affect transaction volumes in coming months.

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Dags Chen, CFA

Head of U.S. Real Estate Research & Strategy

Ryan Ma, CFA

Managing Director, Barings Real Estate

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