From the beginning of November – when the market decided that the Fed was hinting at rate cuts in Q1 of this year until the turn of the year – the quoted sector rallied by an astonishing 23%. The buying frenzy was indiscriminate, with no asset exposure correlation. In fact, some of the best performing shares both in the UK and Europe were those with the highest degrees of leverage. Short positions hurriedly closed and some fundamental buying meant that REITs spent 10 months of the year friendless and ended the year out-performing the All Share Index by 5%.

So far this year, 10-year gilt yields and the five-year swap rate have risen by 60 bps; the sector is back in under-performing mode and nervousness prevails. It’s indeed strange days with a virtual absence of investment interest in the direct market at a time when rental values in ALL sectors of the commercial and alternative markets are rising; albeit only for the so called prime or best-in-class assets.

The journey to price discovery has not yet ended, but I’m rather of the view that the investment market will start to stir when we eventually get a clear message on the timing and scale of rate cuts. After all, investors were happy to pay sub-5% yields for London offices when rents in most areas were static. Now I’m seeing prime rental values – and I stress prime – rising by up to 10% in the Square Mile, which sounds unlikely, but it’s true.

Demand for best-in-class space exceeds current, and likely future, supply so rental growth seems baked-in. The death of the office sector by WFH and “changes in working practice” may have led to rising vacancy rates, but that’s for sub-prime space, of which there’s plenty. For those, including REITs, which own and are developing new space then the death of the office market is turning into one hell of a wake.