Momentum ensures 2006 will be another cracker, but rising yields will douse returns next year

With yields continuing to fall, we believe that commercial property is over-valued against bonds, equities and the performance of the underlying occupier market. However, we believe yields will undergo an upward correction from around the second half of 2007, as debt-backed investors cease to make running profits. Even so, it is important to note that the rise in property yields will not be nearly as nasty as that of the early 1990s and will be achieved through rising rents rather than falling capital values.