Surging inflation and the upcoming recession will cut real household disposable incomes, which are set to see their largest fall on record. That drop in spending power will hit demand for all property sectors, but consumer-facing sectors such as retail and leisure are particularly exposed. Office demand will slow as jobs growth turns negative, and firms continue to adapt to the shift to working from home. The rental outlook has therefore worsened, although industrial looks set for one more year of strong gains. Coupled with a gentle rise in yields, that will cut all-property returns from just under 10% this year to 3.7% by 2023, before a slight reversal in yields helps returns recover to around 6% by 2026.
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