Total returns stabilise, but too soon to call bottom

All-property yields have stabilised since the start of the year and alongside continued rental growth, that means total returns were more-or-less flat during Q1. But, while the worst is over, the economy is still set for a mild recession, interest rate expectations have increased and property looks overvalued. We therefore expect capital values will see a further modest fall over the remainder of the year. Offices look particularly exposed. Indeed, take-up in the first quarter dropped back to its lowest since the pandemic and the Central London vacancy rate has risen to a 13-year high. That points to a fall in rents this year. We think industrial will be the only sector to escape a decline in rents as the recession cuts occupier demand.