European Commercial Property

Scandi & Swiss: Returns to converge further ahead

The economic recovery and strong investor demand are supporting the property market upturn in Scandinavia and Switzerland. However, we expect 2021 to mark the peak for returns in most markets, except for Oslo where the start of the monetary tightening cycle in September means that this peak was likely last year. This reflects our view that structural shifts will weigh on rental value prospects for offices and retail. And while the rental outlook for industrial is brighter, we think stretched valuations will limit the scope for further yield falls beyond 2022. This will also contribute to a convergence in sector prospects in the latter half of the forecast period. As industrial capital value growth slows, we expect a pick-up in retail values, prompted by the improved outlook and supportive valuations. This will allow retail to edge ahead of industrial to the top of the returns table from 2023.
Amy Wood Property Economist
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Non-euro European Commercial Property Chart Book

Scandinavia & Switzerland: Values to rise further

The rebound in economic activity and robust investor demand paved the way for a continued improvement in Scandinavian and Swiss property markets in Q3. Office and industrial values rose further, as strong competition pushed down yields. Retail yields also fell in Stockholm. But we think its too soon to call a turning point for retail. Indeed, retail rents also fell, indicating that conditions in the sector are still weak. Nevertheless, the better outlook for the other sectors means we think that all-property values will rise further. That said, with economic growth expected to slow in the coming months and structural shifts weighing on retail and office sectors, the pace of improvement is likely to moderate.

23 November 2021

Non-euro European Commercial Property Chart Book

Emerging Europe: More positive on near-term pricing

CEE property values completed the final leg of their recovery in Q3, fully reversing the nearly 5.5% peak-to-trough drop in 2020. With rents barely moving on the quarter, falls in yields did all the heavy lifting in driving capital values higher. CEE yields across all sectors have now dropped back since the start of the year, with the decline in retail yields a notable exception in Europe. Therefore, in contrast to our forecast in our last Outlook, we no longer expect office and retail yields to end the year higher. And with both office and retail rents expected to return to growth next year, there is a risk to our forecasts that yields could fall further. That said, given the cooling economic recovery and structural shifts from e-commerce and remote working, the rebound in rents will be modest at best. Moreover, after 2022, rising property yields on the back of higher bond yields mean that the next few quarters are likely to be as good as it gets for property values.

22 November 2021

Euro-zone Commercial Property Chart Book

Rental recovery picks up pace

The recovery in euro-zone commercial property values picked up in Q3, supported by a small fall in yields and an improvement in the pace of rental growth. While retail rents held steady, the quarterly rise in both office and industrial rents was the largest since 2019 Q4. Demand for prime assets and low interest rates will continue to support the property sector. However, with economic activity expected to slow over the next six months or so, and the outlook for the retail and office sectors still clouded by structural change, we think that the property recovery will struggle to maintain its current pace.

16 November 2021

More from Amy Wood

Euro-zone Commercial Property Outlook

Sector fortunes to shift

While the Delta variant has slowed economic activity in other parts of the world, this has not yet been the case in the euro-zone, and we are cautiously optimistic that the bloc will continue to grow. This will support the property market upturn, albeit offices and retail face structural challenges that will limit the rental recovery. Stronger rental prospects for industrial mean we think that the sector has the most scope for yield compression in the near term, though strong demand for prime assets should allow office yields to edge a bit lower too. However, further increases in yields will make some retail assets look increasingly attractive by year-end, prompting small yield falls in the next few years. The upshot is that industrial is expected to outperform over the next couple of years, but stronger capital value growth beyond 2022 will result in retail returns emerging as the strongest.

16 September 2021

European Commercial Property Update

Zurich office returns rank poorly over next five years

Weak near-term rental prospects and squeezed valuations mean that we expect Swiss office returns to perform poorly in the coming years, particularly in Zurich.

6 September 2021

UK Commercial Property Data Response

IPF Consensus Forecasts (Aug.)

The upgrades to the IPF Consensus views for this year still leaves them below our forecast. However, our more downbeat view on the outlook for offices because of the shift to more remote working means that we expect weaker total returns beyond 2022.

3 September 2021
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