US Industrial sector on track for sizeable pricing correction

We have cut our US industrial outlook to reflect rising interest rates and economic uncertainty. A near-term pricing correction will weaken returns over the next 12 months, with total returns set to average 1.7% pa over the 2022-2023 period, down 8.2ppts from our Q3 forecast. 

What you will learn:

• Over the 2022-2026 period, industrial returns for direct (6.2% pa) and listed real estate (6.4% pa) should outpace those of 10-year US Treasuries (3.8% pa) and the wider equities market (3.2% pa).
• While fundamentals are positive in the major markets, we expect the weaker economic outlook will take a toll on near-term performance (namely in the form of rental growth). The cost of capital should act as a restraint on new supply, which in turn should help to limit excess supply over the medium term.
• There are several risks associated with our baseline forecast, particularly a prolonged period of higher inflation and a house price crash. In our high inflation scenario, inflation expectations become de-anchored from the Fed’s target and stays elevated. As a result, 10-year US Treasuries soar, equities fall, and property markets correct.