All property prime yields fall to 1993 levels says CBRE

CBRE’s Prime Rent and Yield Monitor published today said that the all property yield is now 170 basis points higher than the start of 2008 and 254 basis points up from the summer of 2007.

It said all sectors underwent significant price correction in the last quarter with investor activity stalling and occupier demand receding.

Retail warehouses recorded the largest correction, with yields moving by 160 basis points in the three months to December 2008. This shift was largely due to bulky warehouses seeing exceptional price corrections.

The office, retail and industrial sectors all saw yields rise 70 basis points.

All property average prime rents fell by 2.7% in the fourth quarter taking the annual figure to -3.5% for 2008. CBRE said the paralysis in credit markets has contributed to the mood of uncertainty, with the central London business districts of the City and the west-end seeing a large fall off in demand in the fourth quarter, with rents down by 9% and 13% respectively.

The significant lowering of base rates in the final quarter of last year saw gilt yields fall by 145 basis points to 3.0% meaning property now has a positive yield gap of 440 basis points over government bonds.

Peter Damesick, executive director of UK Research at CBRE, said: ‘These latest figures confirm the scale of re-pricing since the upheavals in the financial markets in the fourth quarter. Average prime yields are now at a 15-year high, which is certainly bringing the property sector to the attention of a range of investors.

‘The scale of the re-pricing could help to close the gap between buyer and seller pricing expectations and is likely to present attractive buying opportunities for equity-rich investors targeting the commercial real estate market. With interest rates and government bond yields at unappealingly low levels, the attraction of property income returns looks set to grow in 2009.’