Income security holds up, but weak economy is a lingering threat

With the economy in recession for much of 2009, the latest data from Strutt & Parker and IPD suggest that landlords fared reasonably well last year, retaining a high proportion of tenants and in many cases even raising rents at lease expiry. Given that the economic backdrop remains fragile, however, we doubt that investors will feel confident enough about the near-term security of income streams to lower risk premiums. Thus, our view is that property yields are now close to a floor.