Bond yields of 2% over the medium term will support property

Last week, we revised down our forecasts for 10-year government bond yields, the benchmark riskfree rate for commercial property, from 2.5% at end-2011 – and right through to end-2013 – to just 2%. All else equal, this revision would point to a near-term stimulus for property prices. However, with investors’ risk appetites fading, we suspect that a prolonged period of ultra low rates will do nothing more than help to insulate all-property capital values from a renewed downturn.