Rising Treasury yields squeezing property valuations

On the back of rising Treasury yields, property valuations took their first hit in eight quarters during Q4. And, with Treasury yields climbing higher since, it is likely that valuation scores will fall further in Q1. Despite valuation scores declining in Q4, the retail, office and apartments sectors still look undervalued, whereas the industrial sector now appears fair value. However, retail and office income streams face a weak outlook over the next couple of years, with vacancy set to rise further and rental values to fall. In turn, office and retail yields may need to rise further to be considered good value.