European Commercial Property
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Remote working poses significant downside to rents

As we have argued in our Global Property Focus, we think that some of the increase in remote working seen this year will become a permanent feature of working practices in office-based sectors in the coming years. In Europe, we estimate that this will have a larger impact on demand for space in the German and Italian markets than in Spain or France, where the outlook for office-based employment is stronger. Even so, across all these markets our estimates suggest that, beyond the immediate hit from COVID, prime office rents will continue to fall in the coming years. This poses a significant risk to our current forecast that rents will start to recover in 2021.
Amy Wood Property Economist
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Euro-zone Commercial Property Outlook

Sector fortunes to shift

While the Delta variant has slowed economic activity in other parts of the world, this has not yet been the case in the euro-zone, and we are cautiously optimistic that the bloc will continue to grow. This 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 we think that the sector has the most scope for yield compression in the near term, though strong demand for prime assets should allow office yields to edge a bit lower too. However, further increases in yields will make some retail assets look increasingly attractive by year-end, prompting small yield falls in the next few years. The upshot is that industrial is expected to outperform over the next couple of years, but stronger capital value growth beyond 2022 will result in retail returns emerging as the strongest.

16 September 2021

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Zurich office returns rank poorly over next five years

Weak near-term rental prospects and squeezed valuations mean that we expect Swiss office returns to perform poorly in the coming years, particularly in Zurich.

6 September 2021

European Commercial Property Valuation Monitor

Rising bond yields point to deteriorating valuations

The valuation of industrial and offices deteriorated compared to bonds and equities in Q2 on account of falls in property yields. Meanwhile, retail yields stabilised, leaving valuations broadly unchanged. With government bond yields set to gradually rise as economies continue to recover, valuations are unlikely to find much reprieve in the coming quarters. That said, we still expect industrial and office yields to end this year lower. For industrial, the positive rental outlook should allow yields to fall despite stretched valuations. And for offices, although the sector’s rental prospects are relatively weak, supportive valuations and a focus on prime assets mean that yields can fall further. In contrast, the retail sector’s poor rental outlook suggests that yields will need to rise further to attract investor demand.

2 September 2021

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Has Athens been pushed off track by COVID-19?

After gaining ground since 2018, the recovery in Athens’ prime property values has stalled. However, we think that the catch up with the euro-zone will continue, albeit at a slower pace than in recent years.

6 July 2021

European Commercial Property Update

Vaccine passport no silver bullet for prime high streets

Lingering restrictions on travel mean that weakness in foreign tourist spending will continue to weigh on retailers’ incomes in tourist-dependent retail markets this year. This supports our view that prime retail rents will fall, even as the domestic economic recovery gets underway.

1 July 2021

European Commercial Property Update

Consensus catching up to the view of a weak recovery

The latest IPF Consensus forecasts are consistent with our view that prime office rents will fall this year and the recovery in 2022 will be weak, even as the easing of virus restrictions allows economic activity to rebound. However, outside of Emerging Europe, we are more pessimistic on the outlook after 2022.

3 June 2021
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