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Yields hit 5% and CBRE predicts a further squeeze

Property yields have fallen to their lowest level in more than 20 years, and will continue to sharpen into 2006.

CBRE's all-property average prime yield fell 20 basis points to 5.8% during the second quarter of 2005, its lowest level since Q1 1983.

The all-office yield sunk 20bp to 6.4% in Q2 its lowest for 20 years while the all-retail average prime yield fell to 5.1%, its lowest since Q4 1988.

Sue Clayton, CBRE capital markets managing director, said there would continue to be "downward pressure in the near term", with a further 20bp fall likely by the end of the year.

Many leading investors have been bringing central London assets to the market in recent weeks, indicating a growing feeling that the booming investment market is set to turn.

Clayton disagrees. "The prospect of a reduction in interest rates is likely to continue to drive yields down," she said.

Franco Sidoli, partner at Franc Warwick, said further yield compression would also hinge on what happened with five-year swap rates. "Further yield compression will only happen if five-year swap rates stay where they are or fall further and I can't see them coming down any more.

"There is still strong investor demand."

Source: Paul Norman & David Quinn - EGi News 25th July 2005


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