How demographics drove down property yields – The Property Chronicle
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How demographics drove down property yields

The Economist

Long term interest rates, in real and nominal terms, have fallen continuously since the early 1980s, and yields on commercial real estate have come down with them.  Most recent analysis, suggests that it is real rather than nominal interest rates that dive property yields. Why? Well property yields are themselves ‘real’ returns, since property values tend to drift up with inflation. Investor arbitrage ensures that real returns adjusted for risk, equalize.  When real bond yields fall, investors plough into the nearest equivalent, which is real estate, pushing up prices and depressing (real) yields

So, what has driven long term real interest rates down?  The fall in inflation is the main factor behind the decline in nominalinterest rates.  The decline in real(i.e. inflation adjusted) interest rates has been more difficult to explain, but CBRE Research and others, point to the centrality of demographic change.

Specifically, tt is the growth, as a percentage of the global population, of the 40 to 54 age group that has driven down real bond yields, and property yields as well.  Figure 1 illustrates the trend.  It shows real 10-year bond yields in the United States, Germany and the UK alongside a line indicating the share of global population of those not aged 40 to 54.  That line falls in the period since 1985, indicating that the proportion of those aged 40 to 54 has risen.  Econometrics, not shown here, confirms a statistically significant relationship.

The Economist

About Richard Barkham

Richard Barkham

Richard is a specialist in macro and real estate economics. He joined CBRE in 2014 as Executive Director and Global Chief Economist. Prior to taking up his position with CBRE Richard was a Director of Research for the Grosvenor Group an international business with circa $10bn of capital under management in real estate. He was also a non-Executive Director of Grosvenor Fund Management where he was involved in fund strategy, risk analysis and capital raising. Richard is the author of two books and numerous academic and industry papers. In 2012 he published Real Estate and Globalisation (Wiley Blackwell, Oxford), which explains the impact on real estate markets of the rise of emerging markets such as China and Brazil. He has extensive consulting experience and is a Visiting Professor in the Department of Construction and Project Management at the Bartlett School, University College London. He holds a PhD in economics from the University of Reading where he taught, in the Departments of Economics and Land Management, between the years of 1987 and 1998.​​​

Articles by Richard Barkham

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