With valuations still highly stretched and rent growth likely to slow as the region falls into recession, we think capital values will fall further in 2023. While the 4.5% decline forecast at the all-property level would be less severe than in 2022, this would take the peak-to-trough fall to almost 20%. That would be the second sharpest correction on record and a slightly more pessimistic view than our previous Outlook. Offices are expected to fare worst, while stronger rental growth will support industrial and retail will benefit from smaller yield gains. Favourable structural shifts underline our view that industrial should also outperform further ahead, with total returns of 6.8% p.a. over 2023-27. Retail returns are expected to sit in the middle, at around 5.7% p.a., while offices will trail at 5.3% p.a.
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