United States: Retail real estate returns to accelerate in the near term

US retail real estate returns are expected to accelerate this year, reaching 4.4%, despite growing geopolitical uncertainty, higher inflation, and quantitative tightening. While capital growth will be a key driver of near-term gains, solid income return levels will continue to stabilise the growth path over the five-year forecast period. That said, retail is projected to be the weakest-performing real estate sector in the US. Even so, returns for both direct and listed real estate should comfortably outpace those of bonds and equities.

What you will learn:

• Significant monetary policy tightening expected in the near term. We expect the Fed to raise the policy rate by a total of 175bps this year to rein in inflation.
• Retail yields are expected to soften over the near term. Retail yield compression during the pandemic was the result of a marked fall in income rather than a substantial rise in capital values.
• Retail returns will trail other real estate sectors. Retail returns are relatively weak when measured against past performance, forecasts for other sectors and retail performance elsewhere.