Capital values to fall by another 15%, offices to fare worse

The effects of March’s regional bank failures have yet to come through in the performance data, but transaction volumes have fallen off a cliff. Signs of distress in offices are growing as the sector faces its own credit crunch, with very few lenders willing to provide financing and no sign yet of opportunistic investors. As a result, we think office values will now fall by more than 35% peak-to-trough by the end of 2025 and will not have regained their pre-pandemic levels even by 2040. Our apartment and industrial forecasts are broadly unchanged, where we expect a little more than 20% falls in values. And retail is still the best of the bunch. Here, after this year, we think returns will average 7.5%-8% p.a. in 2024-27, on the back of gradual increases in capital values and income returns of 5.5% p.a