Real Estate Outlook: Cost pressures warming up

For many years, the main argument in defense of ever-lower property yields was that the spread over fixed income yields remained comfortably above historic levels. This is no longer the case, with the spread between government bond yields and prime office yields now below their long-term average in every major market. We expect performance to become polarized between the select few sectors and micro-locations where there is a genuine supply-demand imbalance and landlords can pass on some of the inflationary pressure to tenants. For the rest of the market, the record low property yields now look exposed to rising rates