Weak Q1, but bigger price falls to come in Q2

The economy has been relatively resilient so far, but with the banking turmoil set to weigh on activity, we continue to expect a recession this year. Slower growth has already translated to softer occupier demand across all property sectors. This will weigh on NOI growth across the board this year, but given additional  structural impacts on demand, offices will see a particularly large hit. All-property gross yields increased by 23 bps in Q1, helping push capital values 2.9% lower in the quarter. But this was a smaller price fall than in Q4 and it was too soon for the banking crisis to have had a significant impact. We therefore expect to see even lower investment activity, and an acceleration in yield rises and price falls in Q2. Parts of the retail sector will likely continue to hold up relatively well, but offices will most definitely be the worst-hit sector as the realities of hybrid work finally hit home.