Skip to main content

Decline in risk-free rates to stabilize returns

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.

Become a client to read more

This is premium content that requires an active Capital Economics subscription to view.

Already have an account?

You may already have access to this premium content as part of a paid subscription.

Sign in to read the content in full or get details of how you can access it

Register for free

Sign up for a free account to gain:

  • Unlock additional content
  • Register for Capital Economics events
  • Receive email updates and economist-curated newsletters
  • Request a free trial of our services

Get access