Persistent weak growth and elevated (albeit soon-to-be falling) interest rates continue to spell trouble for real estate values. We see NOI growth softening further over the next year as the industrial rent boom gives way to more “normal” growth rates and apartment rents flatline. At the same time, the adjustment in cap rates will continue to come through in appraisals, meaning that all-property capital values fall by 10% in 2024, after dropping 11% in 2023. Further ahead, the outlook for occupier markets is still strong in industrial and apartments, but both will remain overvalued in 2024 and will see further cap rises beyond, which will weigh on total returns. Instead, retail will be the bright spot, seeing average annual returns of 6% p.a. over 2024-28. Meanwhile, offices still face a substantial value adjustment, with another 20% fall to come in our view. What’s more, we still think it is likely to take two decades or more before office values regain their peak of Q1 2020.
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