European Commercial Property
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Scandi & Swiss: Upgrades to Scandi industrial values

With the recovery in economic activity already underway and further easing in virus restrictions to come, the outlook for occupier demand is encouraging. However, with structural factors also at play, this is likely to provide more support to demand for industrial assets, while the rental recovery in the office and retail sectors will lag. These divergent rental prospects mean we think there is more scope for yields falls in the industrial sector than for offices. And, despite looking relatively better value at current pricing, we think retail yields will rise further. With monetary policy forecast to remain accommodative over the next five years, we don’t expect broad-based increases in property yields until at least 2025. The exception is Norway, where rising interest rates and bond yields are set to put upward pressure on property yields from 2023. The upshot is that we think all-property returns will be weak compared to recent years, but industrial will outperform across the board.
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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
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