Property cycles are inescapable. Closely linked to the economy, real estate markets will inevitably rise and fall. The key to investing in them is to identify where we are in the cycle and to position portfolios accordingly.

We identify four stages in the property cycle. During phase one, there is a sharp sell-off in the market: rents decline and yields rise as investors demand higher risk premiums. During our current cycle, this phase can be aligned with the period around the global financial crisis (GFC). Phase two sees rents continue to fall, but yields stabilise. Generally speaking, this is where we were two to three years after the beginning of the GFC. Phase three — also known as the “Goldilocks” phase, is the best period for investment returns. Yields compress while rents start to rise. Clearly, this represents the tailwinds of the last three to five years.

Finally, we get to phase four. Yields stabilise, but rents continue to rise because there is enough