Yields are the universal language of real estate, but like so many global languages they are not always easily translated between one country and another. After all, even different regions within the same country speak different dialects. Here, we try to unpick the real global picture and see where each of our 12 cities sits in comparison.
Put simply, yield is the income you receive on the capital you use in real estate (annual rent as a percentage of capital value) and this figure can speak volumes about the state of any property market.
Currently, many world city prime yields are either at, or close to, all-time historic lows in both commercial and residential property. This, in part, reflects current global monetary conditions, but could also indicate that capital values are too far ahead of rental growth, that rents have yet to catch up with capital values, that lower income returns are the new norm, or any combination of these factors.
Office occupier yields
Our simple measure of small office occupier costs in world cities shows that occupier yields (rents paid by tenants as a percentage of capital value) fell after 2009 (see fig. 4). Yields on creative/digital properties (usually fringe locations, alternative buildings are less favoured by institutional investors) have recently stabilised, despite rental growth. Yields on financial district buildings that suit small-scale financial occupiers have continued to move in. These prime locations are becoming increasingly favoured by investors, pushing values up and cap rates down.
This means that although rents may be rising, occupiers are paying less for their property each month as a proportion of the capital cost of their building.