​The United States is likely to be in a mild recession by the end of this year or early next, and property values will take a hit as a result, according to Cushman & Wakefield.

In the brokerage giant's latest economic forecast, it said its baseline assumption for the U.S. economy assumes a mild recession in the fourth quarter of this year or early 2023 as rates go up and inflation remains high. Of the four economic scenarios laid out, the most likely, which the brokerage puts at a 50% probability, is that war in Ukraine continues, oil prices stay high and inflation persists.

In that case, Cushman & Wakefield estimates property values will slip by about 20% over the next two years, dropping between 4% and 23% depending on asset class. By 2026, property values would be 90.8% of 2021's highs, according to the model.

“The mild recession scenario … Shows that [net operating income] decelerates across all product types but remains positive in all cases except for office,” the report states. “Also, it is worth noting although NOI slows, it remains far more resilient relative to past recessions, such as 2001, 2009 and 2020.”

The brokerage said a scenario in which inflation comes down and the Federal Reserve eases back on rate hikes sooner than expected is just as likely — 5% — as stagflation, which would would result in a deep recession in 2024 and property value declines of over 30%.

A soft landing outcome, which comes with a 30% probability, has GDP slowing to 2% this year and in 2023, and property values recovering their peak value by 2026.

Working under the mild recession scenario, cap rates will increase, and most acutely between 2022 and 2023, and assets in industrial and multifamily will experience the biggest jump. Cap rates would then go down again starting in 2024.

“Given all the macroeconomic uncertainty — supply chain issues, inflationary pressures, Fed rate hikes, waning consumer confidence and many other headwinds — the No. 1 question we get from clients these days is, ‘How will the shifting environment affect commercial real estate?’” Cushman & Wakefield Chief Economist Kevin Thorpe said in a video discussing the findings. “In general property is a long-term investment, most investors don’t buy a building and sell it the next year … On average if you bought a property and held onto it for five years, you made a 52% leveraged return.”