Property returns to be dented by the euro-zone crisis

Non-euro-zone European economies will not be immune to a fresh recession in the euro-zone. We expect all economies in the region to undergo a sharp slowdown in growth or worse. Barring perhaps Poland, Russia and Turkey, we do not think that occupier demand for commercial floorspace will be strong enough anywhere to prevent a renewed downturn in rental values this year, while uncertainty over the economic outlook will add to upwards pressures on property yields. We expect capital values in all non-euro-zone markets to fall over the next couple of years. But the high income returns on offer in Emerging Europe mean that some markets in the region may record moderately positive total returns. The same cannot be said for property markets in the West.