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Sixty percent of U.S. reespondents to a RICS survey believe commercial property valuations are too high

RICS Survey Finds Rising Concern That Property Values Are Too High 

Near-term uncertainties notwithstanding, North American respondents to RICS’ 2021 Q4 Commercial Property Monitor survey upgraded their projections for capital value growth in the year ahead, with the all-property average hitting its highest level since 2013 in Canada, and reaching a five-year high in the U.S. Tempering that outlook with a note of caution, though, is the finding that 60% of respondents from the U.S. and 61% in Canada now deem commercial real estate values to be expensive relative to fundamentals. Those numbers are up from 48% and 53%, respectively, in Q3. 

This sentiment is being expressed globally against a backdrop of rising inflationary pressures and central banks beginning to tighten monetary policy, RICS reported. “Commensurate with this, only around 10% now take the view that the market could be described as being cheaply valued,” according to RICS.  

The number for the Americas is slightly above the global average at 56%, with the MEA at the lower end of the spectrum (43%), per RICS. In the U.S. and Canada, “it seems that this metric is likely to become further stretched going forward” as values rise throughout 2022. 

Forecasts for property values were revised higher in the Q4 survey of U.S. and Candian industry members for all property sectors. For the U.S., prime industrial values still exhibit the strongest outlook, with respondents penciling in 10% growth over the next 12 months.  

Multifamily and data center values also display “robust expectations” this year, RICS says. At the other end of the scale, secondary office and retail values returned a flat to marginally negative outlook. “Even so, these latest projections are less downbeat than in the Q3 results.” 

The proportion of contributors reporting that conditions are turning down across the commercial property market diminished steadily throughout the course of 2021 within both the U.S. and Canada. “As such, a majority of respondents now view the market to be in an upturn phase of the property cycle in each case,” according to RICS.  

Ann Gray, RICS president-elect, said, “The enthusiasm across the US and Canada is highly encouraging for investors, owners, tenants and capital markets—and the relatively quick rebound is a testament to industry resilience and market responsiveness. Valuation issues likely stem from the high uptick in leasing, sales and lending activity over recent quarters and it’s expected that the market will ultimately stabilize to values in line with fundamentals, despite some short-term alignment concerns.” 

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About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and GlobeSt.com at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

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