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European Commercial Property

European Commercial Property Valuation Monitor

European Commercial Property Valuation Monitor

Most industrial markets overvalued in Q4

Higher government bond yields and falls in property yields across all sectors contributed to a deterioration in European property valuations in Q4. While most industrial markets now look overvalued, for now we think that this is justified by the sector’s better rental prospects. However, the sharp rise in alternative asset yields so far in Q1 will weigh further on property valuations. Given the war in Ukraine, this will be of particular concern for Moscow property.

1 March 2022

European Commercial Property Valuation Monitor

Valuations worsen, but office and retail still fair value

Higher alternative asset yields and falls in office and industrial yields contributed to a further deterioration in property valuations in Q3. The decline in government bond yields since then, which has been reinforced by concerns about the new virus variant, could provide some reprieve in Q4. But looking further ahead we expect government bond yields to rise again and weigh on property valuations. Nevertheless, with the gap to government bond yields still wide, we don’t think this will result in upward pressure on property yields until after 2023. As such, we think there is still scope for property yields to fall before then, not only in the industrial sector where the outlook for rental growth is solid, but also for retail as valuations are supportive and rental prospects have improved.

29 November 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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European Commercial Property Valuation Monitor

Rise in bond yields weighs on property valuations

The marked rise in government bond yields drove a deterioration in property valuations in Q1, particularly in industrial markets where property yields also fell steeply. And with government bond yields edging up further in Q2, valuations will continue to be squeezed. That said, we expect most euro-zone government bond yields to edge lower in the second half of the year and think the economic recovery will support equities. As such, there is scope for some improvement by year-end. This will support lower office and industrial yields. However, without further rises in retail yields, this is unlikely to be enough to attract investors to retail assets.

2 June 2021

European Commercial Property Valuation Monitor

Outlook for property valuations still supportive

With bond and equity dividend yields trending lower, valuations improved in Q4 for offices and retail, while they held steady for industrial. But in Q1, given the recent bond market rout, valuations are likely to deteriorate. That said, the outlook for property valuations is supportive. Accommodative monetary policy and the recovery-driven rally in equities point to government bond and equity dividend yields staying low. In turn, we expect prime office and industrial yields to extend their falls over the coming two years. In contrast, poor rental prospects in the beleaguered retail sector mean that yields there will need to continue to rise to attract investor demand.

8 March 2021

European Commercial Property Valuation Monitor

Only 15% of European markets overvalued

Falls in alternative asset yields in Q3 meant valuations continued to improve for offices and retail, while they held steady for industrial. And the backdrop is supportive of property valuations in the coming quarters. Indeed, government bond and equity dividend yields are likely to remain low or edge down further, with monetary policy expected to remain loose and the economic recovery in 2021 allowing further gains in equities. Although the virus will weigh on investor demand in the near term, valuations should support some prime industrial and office markets further ahead. However, we think that prime retail yields will generally need to rise further to entice investors.

30 November 2020

European Commercial Property Valuation Monitor

Improvement in valuations set to continue

The reversal in equity dividend yields following the virus-related market rout in March lead to a broad-based improvement in property valuations. (See Chart 1.) Coupled with central banks’ assurances that policy will remain accommodative for some time to come, the backdrop is supportive for property valuations. That said, the improvement in relative valuations is unlikely to offer much benefit in the short-term as we expect property yields to nudge up in the face of poor rental prospects and investor risk aversion.

3 September 2020

European Commercial Property Valuation Monitor

Southern Europe leads valuation deterioration

The broad-based jump in equity dividend yields following the virus-driven collapse in equity prices meant that property valuations deteriorated in Q1. This impact was exacerbated in southern Europe, as well as Russia and Turkey, where the March spike in government bond yields has been slower to reverse. Equity dividend yields have since fallen sharply, which should support Q2 valuations. That said, given economic uncertainty and poor rental prospects, property yields are also expected to rise.

4 June 2020
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