Here's something that hasn't been stated in a long time.
In a research note today, Capital Economics says it believes UK commercial property is "undervalued".
Property economist Ed Stansfield says: "With 10-year bond yields averaging 3.65% over the past month and all-property initial yields at 7.7%, investors seem to be pricing property on the assumption that rental values in 10 years' time will be virtually unchanged from today's levels.
"While past experience suggests that this is too gloomy, it is by no means impossible.
"On balance, we feel that property is undervalued, but we do not yet feel that economic conditions merit a sharp contraction in the property/bond yield spread."
Stansfield added that rental values were yet to reach a trough with wider opinion suggesting rents were likely to fall by a further 12% between now and late 2010, before stabilising in 2011.
"Even so, assuming that those forecasts are correct, rental values would then need to grow by just 1.4% per annum to ensure that, 10 years from now, they were back to today's levels.
"That seems undemanding and suggests that property is now undervalued.
"On balance, we do feel that property has become undervalued. But, given the highly uncertain economic outlook, we think that the 70-80 bps drop in IPD yields that we anticipate over the next 9-12 months will be driven by a fall in bond yields, not a sharp drop in the property/bond yield spread."
"Even so, assuming that those forecasts are correct, rental values would then need to grow by just 1.4% per annum to ensure that, 10 years from now, they were back to today's levels.
"That seems undemanding and suggests that property is now undervalued.
"On balance, we do feel that property has become undervalued. But, given the highly uncertain economic outlook, we think that the 70-80 bps drop in IPD yields that we anticipate over the next 9-12 months will be driven by a fall in bond yields, not a sharp drop in the property/bond yield spread."
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