A tough year in store, but retail returns will be positive

This year is being flagged by many as the year the recovery starts, but there is still a substantial amount of pain (and value falls) to come. We think activity will gradually pick up in H2, but partly because of the increase in forced sales that we are expecting. That will provide appraisers with greater evidence of value falls and lead to another year of double-digit price falls at the all-property level as cap rates are pushed up by around 60 bps. After this year, improving NOI growth and better relative valuations will see total returns turn positive from 2025. At a sector level though, we think retail will generate positive returns this year, setting it up to be the strongest performer over the 2024-28 period, with a 6% p.a. total return. Conversely, we are forecasting office and industrial returns will be 2%-2.5% p.a. over the forecast, with apartments in-between the two extremes, at around 4.5% p.a.