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Estimating the carbon transition risk to property values

Real estate potentially has a significant role to play in helping achieve ambitious climate targets. We have estimated the size of the risks in the transition to net zero for the commercial property markets that we cover. This risk varies widely across markets and sectors, but suggests that the costs, at less than 8% of current capital values, are significant but not insurmountable. In view of the wider interest, we are also sending this European Commercial Property Update to clients of our UK and US Commercial Property services.
Yasemin Engin Property Economist
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More from European Commercial Property

Non-Euro European Commercial Property Chart Book

Scandinavia & Switzerland: Value gains set to slow

The recovery continued in the Scandinavian and Swiss economies and their property markets in Q1. It was a record first quarter for investment in Scandinavia. And annual capital value growth was robust for office and industrial, while retail values rebounded from their pandemic lows. However, pent-up demand from the pandemic will wane and the sharp rise in bond yields is already squeezing property valuations. As such, investment activity should slow over the course of the year, while we think property yields will reach their troughs.

24 May 2022

Non-Euro European Commercial Property Chart Book

Emerging Europe: Rental growth steps up

CEE economies and property markets started the year on a solid footing. Strong quarterly increases in office and industrial rents supported CEE all-property values in Q1, though yield compression slowed. However, rental growth is likely to drop back further ahead as economic growth decelerates, supply rises and structural changes take their toll. And we expect all-property yield compression to come to a halt, given increases in bond yields and signs of a shift in investor sentiment towards some CEE markets. As such, capital value growth is likely to slow sharply by year end. Property Drop-In (19th May): What will rising interest rates mean for commercial property returns in the US, UK and Europe? Join our 20-minute briefing on the outlook for returns on Thursday. Register now.

19 May 2022

Euro-zone Commercial Property Chart Book

Slower yield compression weighs on capital growth

Euro-zone commercial property values made further gains in Q1. Quarterly rental growth was strongest for industrial, though office and retail rents also rose. However, the pace of yield compression reduced, limiting capital value growth. And we expect this slowdown to continue, given the weaker economic outlook and expected rises in interest rates and bond yields, which mean property yields are likely to reach their trough this year. Property Drop-In (19th May): What will rising interest rates mean for commercial property returns in the US, UK and Europe? Join our 20-minute briefing on the outlook for returns on Thursday. Register now.

18 May 2022

More from Yasemin Engin

European Commercial Property Update

Which predictions did we get right in 2021?

While office performance surprised on the upside and we could have been much bolder in our forecast for industrial yield falls, our other forecasts for 2021 proved to be broadly correct.

5 January 2022

European Commercial Property Update

Istanbul industrial rental growth to slow sharply

Despite tight supply and the boost to demand from e-commerce, we think Turkey’s recent currency crisis will further weigh on Istanbul industrial rents and that rental growth will slow sharply after this year.

23 December 2021

Non-Euro European Commercial Property Outlook

Emerging Europe: Retail to make a comeback in 2022

With the recovery running out of steam and the emergence of the Omicron variant posing a downside risk, the economic backdrop is likely to provide less support to the property recovery over the coming quarters. Nevertheless, we think that both prime office and retail rents will return to growth next year, while industrial will continue to climb. Reflecting the better rental outlook, we expect yields in all sectors to edge down in 2022. That said, given the structural shifts from e-commerce and full supply pipelines, the rebound in rents across all sectors will be modest at best. And beyond 2022, rising property yields on the back of higher bond yields mean that property values are set to struggle. As a result, total returns will be driven by income returns, with retail overtaking industrial after 2021.

16 December 2021
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