Surge in interest rates means yields will rise further

All-property yields have seen no movement for the past two months and combined with resilient rental growth that means capital values have held firm since March. But stubbornly high inflation has led to a resurgence in interest rates and that has left property looking overvalued once again. Accordingly, we expect yields will soon resume their upward trend, although a repeat of the surge seen late last year is not on the cards. Rental growth is also set to ease as the economy enters a recession later this year. Office rents saw a particularly large slowdown in May, with only the tight West End market seeing any growth. Given structural issues, offices rents are set to turn negative from here. Industrial rents are holding up for now, but the recession will drag them back down to earth later this year.