The UK real estate market has just endured its worst quarter since the depths of the global financial crisis.
New data from MSCI shows that the return of its UK Quarterly Property Index between July and the end of September was the worst since the second quarter of 2009. The 10-year UK government bond yield rose above the net operating income yield of UK real estate for the first time since 2007.
Niel Harmse, MSCI’s vice-president of real estate research, said real estate had been hit by “the evaporation of property’s yield premium amid the recent deteriorating macroeconomic outlook and rising inflation and interest rates”.
Over the quarter, real estate yields rose by 20 basis points to 4.1%, but remained below the previous low of 4.6% measured in the second quarter of 2007.
By the end of September, only the retail sector’s NOI yield registered a premium to the government-bond yield, while the yield on industrial property remained 80 bps lower than 10-year gilts.
MSCI said the turnaround in yields was “most dramatic” in industrial, with a “double-digit swing into negative territory”.
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