The slowdown in rent growth at the start of this year is likely to persist given the weak economic backdrop. And although the property price correction has slowed, we think stretched valuations will push yields higher and drive further capital value falls by year-end. Yields should stabilise in 2024, but remain elevated for several years. As a result, the recovery in capital values will be muted. Our downgraded office outlook ensures it remains the weakest sector, while stronger rental growth will support industrial capital value growth and retail will benefit from relatively smaller yield gains. This outlook for values underpins sectoral performance in Europe over 2023-27. Average industrial returns of around 7.5% p.a. lead the way, retail sits in the middle at 5.5% p.a. while office returns of 4.5% p.a. are weakest.
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