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Italian capital values to take a hit

Italian prime property values continued to make solid gains in Q1. However, with the economic outlook downgraded and larger increases in property yields expected over the next couple of years, capital value growth is set to slow sharply and by more than in other euro-zone markets. Markets Drop-In (11th May, 10:00 EDT/15:00 BST): We’re discussing our Q2 Outlook reports and what they say about the potential performance of bonds, equities and FX rates as inflation peaks in a special 20-minute briefing on Wednesday. Register now.
Amy Wood Senior Property Economist
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More from European Commercial Property

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

European Commercial Property Update

Will property resist the effects of deglobalisation?

A recent MSCI article speculated that real estate investment could buck the deglobalisation trend given distinct features of the asset class, though we are not convinced that will bring many benefits. In view of the wider interest, we are also sending this European Commercial Property Update to clients of our UK & US Commercial Property Services.

14 June 2022

More from Amy Wood

European Commercial Property Update

Office yields most vulnerable to rising interest rates

While the low level of prime industrial yields compared to history leaves the sector vulnerable to rising interest rates, a fair value analysis that incorporates our expectations for rental growth suggests that office yields could come under more upward pressure in the next few years.

4 May 2022

European Commercial Property Update

War impact reinforces investment slowdown

While Q1 investment data showed further strength, the impact of the war in Ukraine on investor sentiment, economic growth and interest rates support our view that pan-European (excl. UK) investment activity will slow further ahead.

29 April 2022

European Commercial Property Update

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.

28 April 2022
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