Outlook for property valuations still supportive

With bond and equity dividend yields trending lower, valuations improved in Q4 for offices and retail, while they held steady for industrial. But in Q1, given the recent bond market rout, valuations are likely to deteriorate. That said, the outlook for property valuations is supportive. Accommodative monetary policy and the recovery-driven rally in equities point to government bond and equity dividend yields staying low. In turn, we expect prime office and industrial yields to extend their falls over the coming two years. In contrast, poor rental prospects in the beleaguered retail sector mean that yields there will need to continue to rise to attract investor demand.