Following a sharp deterioration in the previous quarter, property valuations held steady in Q2. But while changes so far in Q3 point to only a slight worsening in valuations, we expect Treasury yields will turn a corner and rise to 1.75% by end-2021, which will squeeze property valuations further. Movements in valuation scores were split between sectors this quarter, with a worsening in valuations leaving apartments and industrial looking fairly valued whereas a rise in our scores for office and retail made these sectors look relatively cheap. But the bigger picture remains the same, as we think that “average” office and retail assets will need to see further yield rises before they truly represent good value to investors.
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