It’s all in the yield (Property opinion piece May 2015)

By Tim Sankey, Fund Manager, Property, Aberdeen

Recent research from Blackrock* showed that there's currently £5.3tn of government debt in circulation, which has a negative yield. As such, it seems surprising that investors would drive down bond yields to the extent that it costs them to lend the government money. But the current pricing environment for bonds shows why real assets, such as property, with strong income streams are in such high demand.

The UK property market saw yields fall considerably throughout 2014, although they remained attractive relative to bond yields. Although the rate of decline slowed a little during the first quarter of 2015, surely this is only a temporary blip, a pause for breath or election fever? In the short term, it’s hard to see anything but continued pressure on property prices, but the implications for the longer term are less promising.

*Source: BlackRock Investment Institute, Thomson Reuters Datastream, March 2015

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