Property values on course to fall by more than 25%

The market remains in the doldrums, with the mood negative and activity weak. We think this summer could be the bottom for transactions, but we still see valuations needing to fall by another 12% from Q1 levels. That predominantly comes through in cap rates, which we don’t think have adjusted sufficiently to the higher rate environment. We expect another 80 bps of cap rate rises before they reach a peak, most of which will be this year. Importantly, when the recovery comes, it will be weak. As a result total returns will average just 3% p.a. over 2024-28, rising to 5.5% if 2024 is excluded. Retail is our top performer at 6% p.a. in 2024-28, with office and industrial trailing at just 2-2.5% p.a. Apartments split those sectors, at 4.5% p.a.