Valuers sharpened their pencils in September, knocking 5% off valuations, according to data from MSCI. The fall in capital values was predominantly driven by an outward yield shift of 6.5%. The background to this rise was a jump in long-bond yields from 2.3% to 4.2%.

Plotting the yield rise by sector reveals that the yield shift was proportionate to the yield level: with lower yielding segments seeing the greatest outward yield movement (see chart below). For example, London industrials, with an equivalent yield of 3.5% as at end Q2, experienced the greatest outward yield shift (12.5%) in Q3, whilst shopping centres, with an equivalent yield of 9.3% as at end Q2, experienced the smallest outward yield shift (1.2%) in the next quarter.

Bond yields have moderated slightly since September (currently 3.3%) but it is likely that a replication of the yield trends in Q3 will be repeated in Q4, leaving total returns slightly negative for 2022 as a whole.