US economic outlook

Activity

GDP expanded by 2.1% over 2025, and we expect a similar rate of growth over 2026. The US showed promising momentum prior to the conflict in the Middle East, but risks are now tilted to the downside as energy price shocks and expected secondary inflationary effects feed through. Although unemployment claims remained low in April, surveys suggest hiring expectations eased as the potential implications of the conflict grow in scale.  

Inflation

Both producer and consumer headline inflation accelerated in March, to 4.0% and 3.3%, respectively. The core Consumer Price Index (CPI), which strips out food and energy, has not yet seen a feed through from higher energy costs, although we expect this to change over the coming months. Consumers are already feeling the effects though as gasoline prices were up 21% month on month in March's CPI figures. 

Policy

The Federal Reserve (Fed) is taking a ‘wait-and-see’ approach to energy prices. As long as inflation expectations remain anchored, the Fed is more likely to look through energy prices as a one-time shock. The extent of secondary inflationary effects will depend on which scenario unfolds. In the upside TACOil¹ scenario, we could see the Fed resume easing later this year; while in the downside ‘stagflation’ scenario it would be difficult not to reverse course into a more restrictive policy path. 

Figure 2: US economic outlook

Conflict risk dominates (base case – 14/04/2026)

TACOil

Stagflation

Given the current evolving geopolitical situation, it's worth highlighting our views within the context of multiple scenarios. Generally speaking, the US and Canada are more insulated given their domestic energy output, but the global economy is still affected to varying degrees in each scenario.

Conflict risk dominates (base case – 14/04/2026)

Occupational markets will remain bifurcated, and best-in-class assets in dominant markets will outperform. Cost pressures will limit occupier expansion, although certain markets such as Dallas and Houston may see longer-term structural demand shifts as energy supply chains reconfigure. Transaction volumes will remain muted, and there will be some downward pressure on capital values as rates remain higher for longer. 

TACOil 

Inflation increases throughout 2026 but falls more decisively and is less sticky. Real estate yields and occupational markets prove more stable, particularly for best-in-class assets. Residential rents may see slower growth as the consumer is hit with higher prices at the pump and in grocery stores. Transactions would likely pick up throughout the year as the situation becomes clearer. 

Stagflation

The US fares better than most developed countries in the downside ‘stagflation’ scenario, partly due to the strength and global position of the dollar and the US’ status as a net energy exporter. While growth is lower, the US has a relative advantaged on its peers as the Fed has greater tolerance for above-target inflation provided expectations are anchored.

North America real estate market overview

Real estate delivered 4.8% over the 12 months to December 2025². The majority of performance was driven by income returns, but capital values appear close to reaching a floor across most sectors. The exception to this is offices. Although capital value declines slowed over 2025, negative growth of -3.1% meant the sector’s total return lagged at 2.4%. Meanwhile, retail performed best at 6.9%, boosted by stronger capital growth from relatively low bases, and a resurgence in consumer activity for discount retailers and experiential shopping.

Investment activity slowed over the first quarter of 2026, down around 10% year-on-year³. While this isn’t surprising given the current geopolitical uncertainty, the effects aren’t as pronounced as in other regions; dominant markets such as New York City and Los Angeles appear more resilient. 

US real estate market trends

Offices

The outlook for offices remains polarised between markets. The core gateway stalwart of Manhattan is gaining traction, with the prime segment of the market performing best, in general. Leasing activity in Manhattan is tracking above the 10-year average, driven by the financial services, technology and advertising sectors⁴. Crucially, tenant incentives are also reducing from their peaks on both new lettings and renewals, and overall availability is in decline. Meanwhile, development is primarily focused on office-to-residential conversions, while new office deliveries remain sparse. As a result, market rents look set to grow, with an emphasis on prime rents in the Midtown submarkets.

The Sun Belt markets are seeing growing demand for prime office space, especially in low-tax, low-regulation states. At the same time, construction activity is slowing across most Sun Belt markets and increased office conversions will further exacerbate a limited pipeline. However, there is still a large amount of obsolescence that needs to be worked through. This will keep downward pressure on market rents for some time. Atlanta, Houston, and Dallas have more supportive fundamentals, but demand is also slower to bounce back as return-to-office requirements have lagged. Other gateway markets like Los Angeles and Chicago are suffering with vast amounts of obsolescence and weak demand. In our view, these will underperform in the medium term.

Investment activity picked up over 2025, representing a 26% increase over the prior year⁵. The first two months of 2026 saw a similar trajectory, although the ongoing conflict in the Middle East will undoubtedly affect transaction activity. 

Industrial and logistics

The industrial sector returned 4.8% over the 12 months to December 2025⁶. Capital growth is across the sector, while macroeconomic uncertainty weighed on tenant activity outside of the best quality space. Relatively tight cap rates should curtail any meaningful yield compression, as monetary policy remains restrictive, especially with additional inflationary headwinds to come.

Industrial markets in Texas continue to perform well, with Houston, in particular, benefiting from supply chain reconfiguration and diversification. The importance of the Port of Houston can't be understated, as US policy shifts towards reshoring and intra-North American trade. Both Dallas and Houston also have limited land supply, providing a runway for resilient rental growth in the core infill submarkets, especially when net absorption is at or above the pre-Covid average⁷. Meanwhile, West Coast markets are sluggish, with the SoCal markets of Los Angeles and the Inland Empire lagging behind. The vacancy rates in these markets are stabilising, but rents are repricing against weaker occupational demand. There are some encouraging signs for manufacturing. as foreign direct investment jumped after ‘Liberation Day’ in 2025. Although manufacturing remains a small part of the US’ services dominated economy, initial signs point towards an eventual net-positive to production⁸.

At a national level, industrial investment volumes are 14% higher than the long-term average⁹. The Los Angeles market, which typically makes up nearly 30% of volumes, is closer to 20% now, with Dallas and Houston both gaining popularity with investors. Private buyers remain the most active investor type, while the share of listed buyers has fallen away over recent years.

Retail

Retail is outperforming the market because of stronger income returns, with a 6.9% total return over the 12 months to December 2025¹⁰. Open-air shopping centres saw near double-digit returns over the same period, as strong capital growth feeds through. The national vacancy rate has stabilised and supportive supply dynamics should keep upward pressure on rents¹¹.

The consumer was in a decent place prior to the conflict in the Middle East, but there were already tentative headwinds to note. Real compensation and real consumption both fell over January, doing little to inspire confidence in consumers’ ability to look through higher inflation. While real wages are still positive and unemployment looks stable at 4.3%, supply price shocks will drag on consumers’ personal finances¹². Consumer confidence fell sharply in March, and the tangible effect of 35% higher retail fuel prices will have an outsized effect on the American consumer, more or less neutralising any tax returns. As such, we would expect a slight hit to discretionary spending as monthly finances become more stretched. But, a relatively strong labour market should ultimately provide some buoyancy. 

Living

The living sector is polarised across segments of the market, although each is experiencing headwinds. While multifamily is slightly outperforming All Property – supported by more resilient capital values – a softer labour market and weak population gains have weighed on demand. As a result, vacancy rates are near 10% at a national level and concessions are common in supply heavy markets¹³. Despite seeing the largest supply response, the Sun Belt markets are leading in terms of absorption. At a national level, multifamily supply is in decline due to prohibitive development economics. This should provide some support for rents amid normalising demand, with Class-A apartments expected to be more resilient.  

The single family rental (SFR) segment may soon face regulation aimed at limiting institutional ownership, after legislation passed the Senate by an overwhelming bipartisan vote of 89-10. While the total implications of the bill are unclear – not least given objections in the House – both the Democrats and Republicans have motivations for a bill of this nature. As such, we would expect investor caution here. It's worth noting that institutional owners account for a small (3%) proportion of all SFR in the US¹⁴.

Student housing is also facing its own headwinds. At a national level, there is pressure on occupancy levels and admissions are increasingly polarised towards flagship universities. International enrolment also declined over 11% into the 2025/26 academic year, and pre-leasing into the 2026/27 academic year appears to be normalising to the pre-2020 trend¹⁵. Affordability concerns are widespread given years of strong rental growth, but investor interest in the sector seems robust across a diversified capital base¹⁶.

Outlook for risk and performance

Despite global geopolitical and macroeconomic volatility, US real estate appears resilient in the near term. The labour market, while soft, is still in a positive place and the consumer has the ability to absorb supply-side shocks. Supply dynamics are prohibitive across most sectors, which should provide support for rents, and investment activity is robust. Affordability remains a concern in parts of the residential and industrial sectors, and offices are a significant structural drag outside of best-in-class assets in core markets. We expect income to drive the majority of returns, translating most in the retail and other sectors. The industrial and office sectors are most polarised across quality and market.