The shortage of prime property is tightening yields, with the market approaching a tipping point, according to Cushman & Wakefield.


Prime yields fell an average of 4bp in May to 5.77%, their lowest level since March 2012.


Cushman said it expects supply pressure to force yields lower in the coming months, helping to end the 18 months of falling IPD capital values.


Secondary yields edged up further to just over 10% last month.


David Erwin, Cushman & Wakefield's CEO of UK Capital Markets, said the agent's latest capital markets and agency meeting had been the most positive since the start of the recession.


"Confidence seems to be returning across almost all sectors both from an investment and an occupational perspective.


"Activity in both the regions and non-core assets seems to be on the increase and a relatively limited supply of stock should see prices continue to harden across all sectors, at least until the end of 2013 as the short term weight of capital continues to seek a home.


"We have already seen yields harden in four of our investment sub-sectors in the last month but the future yield trend in a further 10 categories suggests falling yields. Buy now while stocks last."


David Hutchings, Cushman & Wakefield's Head of EMEA Research, said: "Fears of rising interest rates may have destabilised stock markets in recent weeks but the impact on property has been minimal to date - which is not too surprising given that property values had not really fallen to match the ultra-low level of bond and swap rates. Even after a 50bp rise, property yields still stand at a significant premium to bond yields on an historic comparison.


"What is more, savvy investors are mindful that any signs of rising interest rates will only come when the economy is in a healthier position - and that should benefit property values as occupier demand increase, particularly given the low level of prime space in many areas."