European Commercial Property

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.
Yasemin Engin Property Economist
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European Commercial Property Update

ECB rate hike unlikely to move the needle for property

While we now expect the ECB to start its tightening cycle earlier, we don’t think the change is significant enough to prevent further property yield compression over 2022-23, albeit at a slower pace than in 2021.

18 January 2022

European Commercial Property Update

Gradual flexible office recovery underway

Having been hit hard in 2020, improving economic conditions supported flexible office take-up in 2021, albeit caution and consolidation limited the net increase in space. While we expect take-up to remain low compared to the pre-virus period, we think it will improve in 2022, with demand for flexibility and the lower cost of desk space in some markets encouraging a shift towards flexible space.

17 January 2022

European Commercial Property Update

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.

14 January 2022

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European Commercial Property Update

Luxury won’t shield Paris retailers from e-commerce

We expect prime retail rents in both Lyon and Paris to struggle to make up lost ground this year, and even after a return to growth next year, the pace of increases will be subdued.

16 August 2021

European Commercial Property Update

Helsinki offices to continue to outperform euro-zone

Following better-than-expected Q2 data, we have revised up our Helsinki office returns forecasts for this year. And given a robust rental outlook, returns are set to outpace the euro-zone over the next few years.

6 August 2021

European Commercial Property Update

Investment past the worst but still faces uphill struggle

The Q2 data showed that pan-European (excl. UK) transactions improved after their Q1 lows. But international travel restrictions, structural shifts in the office and retail sectors and tougher credit conditions mean that the recovery in investment activity will be lukewarm.

29 July 2021
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