The unfolding recession in the euro-zone has considerably further to run. And it does not bode well for commercial property. Occupier demand will weaken and most markets will see fresh falls in rental values over the remainder of this year and into 2013. The weaker outlook for rents, combined with low risk appetite, also suggests that the next move in property yields is likely to be upwards. However, we do not anticipate anything like the sharp rises seen in 2008/09. Although property markets in the Northern core look best placed to weather the downturn, on average, all euro-zone markets are likely to suffer at least some drop in capital values over the next 12-18 months.
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