Economic uncertainty is the flavor of the day, but Cushman & Wakefield foresees a sour taste for U.S. property values.
The brokerage forecast a 50 percent chance of a mild recession. There was also a decent chance of a soft landing for the economy (30 percent), but only a marginal shot at stagflation or an upside scenario.
Under a mild recession, Cushman projects Russia’s invasion of Ukraine continues, oil prices remain elevated and lasting inflation. The recession would remain mild, however, on the back of underlying strength of consumers and businesses.
Overall, property values in the mild recession scenario are estimated to fall 8.2 percent this year and 11.2 percent in 2023. After that, values would slowly start to improve, starting with a 2.6 percent leap in 2024 up to a 4.8 percent gain in 2026.
Cushman’s projection calculates net operating income and capitalization rates to determine what property values could look like under each potential scenario.
Naturally, upside growth would be the best case scenario for property values, which are projected to improve 0.2 percent this year under such a scenario. They would drop in 2023, according to the projection, before soaring around 6 percent each of the following three years.
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The worst case scenario would be stagflation. Were that to occur, property values could drop each of the next five years, including by 15.8 percent next year alone.
In a mild recession, Cushman projects office property values to drop by 9.6 percent this year and 12.1 percent next year before leveling off. None of the scenarios see office property values gaining before 2024.
Industrial real estate would also see values decline, even under a mild recession. A recession could lead to a 4.7 percent drop in values this year and 14.1 percent fall next year before improving again. With an upside growth scenario, industrial values would increase 3.4 percent this year before dropping in 2023.
Retail appears more immune to the effects of a recession. A mild recession is projected to only lead to a 2.3 percent hit in value this year and 1.8 percent drop next year before the picture begins improving.
The multifamily sector, one of the pandemic’s hottest property types, would not be as resilient as the retail sector. A mild recession is predicted to beckon an 11.1 percent decline in values this year and 12.2 percent decline in values next year. No scenario sees multifamily values rising before 2024.