With the recovery in economic activity already underway and further easing in virus restrictions to come, the outlook for occupier demand is encouraging. However, with structural factors also at play, this is likely to provide more support to demand for industrial assets, while the rental recovery in the office and retail sectors will lag. These divergent rental prospects mean we think there is more scope for yields falls in the industrial sector than for offices. And, despite looking relatively better value at current pricing, we think retail yields will rise further. With monetary policy forecast to remain accommodative over the next five years, we don’t expect broad-based increases in property yields until at least 2025. The exception is Norway, where rising interest rates and bond yields are set to put upward pressure on property yields from 2023. The upshot is that we think all-property returns will be weak compared to recent years, but industrial will outperform across the board.
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