All-property valuations saw the largest quarterly increase in over a decade in Q4, as property yields rose across all sectors and the 10-year Treasury yield saw its sharpest quarterly decline since Q1 2020. At the sector level, industrial still looks overvalued, although we expect yield rises this year will push it into fair value. A significant rise in office yields meant the sector looked undervalued in Q4, but poor prospects for office NOIs means we still think a further pricing correction is required. Retail’s “fairly valued” score and NOI stabilisation is likely to look relatively attractive.
In 2024, we expect further rises in property yields across the sectors, and for the 10-year Treasury yield to drop to 3.75% by the end of the year. Together, this should allow valuations to improve throughout the year.
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