European Commercial Property
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European Commercial Property

European Commercial Property Update

CEE yield compression to continue into 2022

After surprising on the upside this year, we think that the broad-based decline in Central and Eastern European (CEE) property yields will continue in 2022, albeit at a more modest pace. But with higher bond yields eventually weighing on valuations, we expect property yields to edge up from 2023.

30 November 2021

European Commercial Property Valuation Monitor

Valuations worsen, but office and retail still fair value

Higher alternative asset yields and falls in office and industrial yields contributed to a further deterioration in property valuations in Q3. The decline in government bond yields since then, which has been reinforced by concerns about the new virus variant, could provide some reprieve in Q4. But looking further ahead we expect government bond yields to rise again and weigh on property valuations. Nevertheless, with the gap to government bond yields still wide, we don’t think this will result in upward pressure on property yields until after 2023. As such, we think there is still scope for property yields to fall before then, not only in the industrial sector where the outlook for rental growth is solid, but also for retail as valuations are supportive and rental prospects have improved.

29 November 2021

Non-euro European Commercial Property Chart Book

Scandinavia & Switzerland: Values to rise further

The rebound in economic activity and robust investor demand paved the way for a continued improvement in Scandinavian and Swiss property markets in Q3. Office and industrial values rose further, as strong competition pushed down yields. Retail yields also fell in Stockholm. But we think its too soon to call a turning point for retail. Indeed, retail rents also fell, indicating that conditions in the sector are still weak. Nevertheless, the better outlook for the other sectors means we think that all-property values will rise further. That said, with economic growth expected to slow in the coming months and structural shifts weighing on retail and office sectors, the pace of improvement is likely to moderate.

23 November 2021

Our view

The continued rebound in European economic activity will support the property market upturn, albeit offices and retail face structural challenges that will limit the rental recovery. Stronger rental prospects for industrial mean that yields are expected to fall by the most in the near term. However, we think retail assets will look increasingly attractive by year-end, prompting small yield falls further ahead. This means that, while industrial is expected to outperform over the next couple of years, we expect retail to emerge as the strongest sector beyond 2022.