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Chart of the week

Suburban dominance grows amid evolving CRE market

CRE prices have rallied, yet the urban-suburban divide has grown. This week’s chart looks at the widening gap throughout the pandemic.

February 18, 2022 | 2 minute read

Commercial real estate price growth: Urban vs. suburban

Source: Real Capital Analytics, as of December 31, 2021. Latest data available. RCA CPPI refers to the RCA Commercial Property Price Index. COVID-19 declared a pandemic by the World Health Organization on March 11, 2020.

  • The commercial real estate (CRE) market stood out in 2021 even amid the year’s strong U.S. equity rally.
  • The RCA Commercial Property Price Index (CPPI) rose 22.9% in 2021, notching its fastest-ever annual growth in the 21-year history of the index as CRE prices were supported by a recovery in rents, excess liquidity, and low interest rates.1
  • Industrial and apartment prices led growth during the year. Perhaps the most notable trend was not by property type, but rather in the growing urban-suburban divide, which accelerated as Americans migrated away from expensive states and urban cores during the pandemic.
  • Property prices clearly followed the migration patterns. While property prices are up across the board, price growth among urban properties has significantly trailed that of suburban properties since the pandemic began as the chart shows.1 Even within the suburbs, density was a loser as prices for car-dependent suburban properties far outpaced that of highly walkable suburban properties (those closer to a city).1
  • The rationale behind American’s flight from density involves both cost — property values in major metro central business districts grew nearly twice as fast non-major metros for the 10-years ended 2019 — and convenience as office employees desire more space in an increasingly remote-work world.1
  • The backdrop supporting the CRE markets appears healthy in 2022, yet the dispersion between property types and locations could continue to widen, offering selective investors the opportunity to outperform.

  • Real Capital Analytics, as of December 31, 2021. Latest data available.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

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