Following the previous large quarterly increase, improvement in all-property valuations stalled in the first quarter of the year despite a rise in the 10-year Treasury yield.
There was little change at the sector level. Industrial continued to look overvalued, and we still expect further yield rises later this year. Meanwhile, further rises in office yields have kept the sector undervalued. But poor prospects for office NOIs mean we still think a further pricing correction is required.
While we expect the 10-year Treasury yield to gradually drop back to 4% by year-end, that will not prevent valuations from looking stretched, meaning we think property yields still have further to rise.
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