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Euro-zone property yields to rise sooner

A weaker economic outlook and larger increases in interest rates this year and next mean that we now think euro-zone all-property yields will reach their trough by the end of this year and will come under more upward pressure than previously expected.
Amy Wood Senior Property Economist
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Non-Euro European Commercial Property Outlook

Emerging Europe: Property yields to move higher

Weaker economic activity and higher interest rates as a consequence of the war in Ukraine will weigh on property performance in Central and Eastern Europe (CEE). Shifts in investor sentiment and a sharp deterioration in valuations are expected to put upward pressure on property yields from this year. We now think CEE all-property yields will rise by a cumulative 45bps over the coming years. This will contribute to capital values falls in the coming years, particularly in the office and industrial sectors where the rental outlook is softer. After 2022, this will mean retail steps up as the best performing sector.

30 June 2022

Non-Euro European Commercial Property Outlook

Scandi & Swiss: Rising interest rates to hit values

The rapid turnaround in the interest rate environment has led us to revise down our expectations for property performance in Scandinavia and Switzerland. Property valuations deteriorated sharply in Q1 and are expected to come under more pressure given further rises in bond yields. We now think property yields will reach their troughs this year and will rise by a cumulative 30bps-35bps over the following few years. With structural changes weighing on the office and retail sectors, rental growth is unlikely to be strong enough to prevent a material slowdown in capital value growth, with falls likely in 2023-24. This will contribute to a sharp drop in returns after this year. Within this, industrial is still expected to perform best, but the margin of outperformance will reduce significantly compared to recent years.

27 June 2022

Euro-zone Commercial Property Outlook

Rising interest rates to speed up property correction

The weaker economic outlook and larger increases in interest rates are expected to weigh on property performance. With valuations under increasing pressure from sharply rising bond yields, we think that property yields will reach their troughs this year and rise by a cumulative 35bps at the all-property level over the following few years. Rental growth is unlikely to be able to provide much offset to prevent falls in capital values in 2023-24, with structural changes dragging on the retail and office sectors. This will leave annual total returns languishing in low single digits on average over the forecast. Beyond 2022, we think retail will overtake industrial as the best performing sector, while offices are expected to underperform.

23 June 2022

More from Amy Wood

European Commercial Property Update

Completion delays prolong Budapest office market dip

Past delays in development projects mean that office completions will exceed demand in Budapest this year and next. As such, having held broadly steady in 2021, office vacancy is set to rise again and put downward pressure on rents over the next couple of years.

22 April 2022

European Commercial Property Update

Rising costs an upside risk to German industrial rents

While prime industrial rental growth in the German markets is expected to slow in the next couple of years, it will remain above its past averages. But the risks are to the upside given the rise in land and construction costs, which are likely to further squeeze developers’ margins.

11 April 2022

European Commercial Property Update

Amsterdam and Rotterdam retail to trail

With cyclical pandemic effects fading, the backdrop has improved for Dutch retail. However, having been hardest hit in 2020-21, the structural legacy of COVID-19 and higher economic barriers to conversion mean that the outlook is also weaker for retail in the larger Dutch cities.

4 April 2022
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