Period of strong capital value growth nearing an end

Against a backdrop of solid economic growth, the outlook for occupier demand and rental growth is encouraging. But with prime property yields close to finding a floor, and tighter monetary policy on the horizon, the days of strong, yield-driven, capital value growth are largely behind us. As the cycle begins to turn towards the end of the decade, rental growth won’t be sufficient to offset rising property yields and prevent capital values from starting to fall. With a weak outlook for capital values, total returns at the all-property level are forecast to average around 3.5% per annum across the euro-zone, well down on the double-digit returns seen in recent years.