Property yields rose further in Q3, but with risk-free rates now falling back, we think they will peak by the end of 2023. That will help stabilize capital values, but, given historically narrow yield spreads, we doubt we will see much yield compression ahead. Combined with a slowdown in rental growth next year as the economy enters a mild recession that means the recovery will be tepid, with all-property total returns of 6.3% p.a. over 2024-27. Offices also face structural challenges from the shift to remote work and will underperform, with returns of just over 5%. The industrial sector has the best rental outlook, but, thanks to higher income returns, retail is set to be the best performer with total returns of just over 7% p.a. over the forecast period.
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