Better out than in

The outlook for economic growth in the economies outside the single currency region are typically a little brighter than for those within it. Hence we are a little bit more upbeat about near-term occupier and investment market prospects in Emerging Europe and non-euro-zone Western Europe. That said, economic growth will be subdued compared to normal, keeping occupier demand soft, undermining rents  and putting yields under upward pressure. Better growth prospects and higher starting levels for yields in Emerging Europe should mean that the downturn in capital values in the East is relatively short and shallow. But our view that yields in Western markets have fallen too far suggests that they may drift higher for several years, acting as a brake on capital value growth.