Property edged into fair value territory in Q3, extending recent improvements, despite real estate yields moving lower. This will help support investment ahead, though we think appraised cap rates still need to rise further to bring sustained improvement.
That is particularly relevant in industrial, the most overvalued sector, where we expect yields to rise over the coming quarters. While appraised yields for offices are now falling, this reflects a drop in landlords’ incomes, rather than more aggressive pricing in the sector. Therefore, we think the sector still has a small capital value adjustment ahead before it hits its floor.
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