The Bank of Japan’s move to introduce negative interest rates last week is a reminder of the stark options facing investors. The Financial Times estimates that the number of central banks that now have a negative interest rate policy represent countries which, combined, are responsible for a quarter of the world’s output. As a proportion of the world’s mature economies, it is even higher. In the UK it has probably had the effect of further postponing the date on which the Bank of England starts raising the official interest rate. In the US, it even calls into question the merits of the Federal Reserve’s decision to raise rates in December.
More importantly (for us anyway), it brings the yield profile of UK commercial property into perspective. At a time when a significant part of the world’s financial system requires payment in order to hold your cash, a City office building (possibly let to a bank!) yielding say 4.5% doesn’t look bad value. This highlights the difficulty of measuring value by comparison with previous cycles.
This is undoubtedly an investment market like no other.