Real estate repricing brought forward, weakening returns

We have significantly downgraded our global real estate outlook since the launch of the Real Estate Economics Service six months ago. We now believe valuation yields are likely to rise 30bps by year-end 2024, to counterweigh the jump in long-term government bond yields. The result: Capital appreciation, will be reduced substantially – or turn negative in certain instances. Rental growth prospects and properties with solid income streams will be vital to solid total returns.

What you will learn:

• We now expect that all-property returns globally will average 5.6% pa, down from 7.1% pa in January forecast release.

• Office and retail returns have seen the largest downgrades, as hybrid working and a squeeze on real disposable incomes drag each sector respectively.

• That said, real estate continues to look attractive on a relative basis, with both global direct real estate and REITs (GDP-weighted five country average) delivering returns of around 5.6% and 5.1% respectively over the five-year forecast horizon, well above our current forecast for bonds (2.5%) and the wider equities market (3.3%).