Higher interest rates have already resulted in a sharp property repricing in 2022. And with valuations still highly stretched and rental prospects weaker given the imminent recession, we think values will fall further next year. However, as we think government bond yields have peaked and the economy is set to start its recovery in the second half of next year, we think the peak-to-trough fall in euro-zone all-property capital values will be limited to around 15%. The decline will be largest for offices, with stronger rental growth supporting industrial and a smaller rise in yields expected for retail. Structural shifts also favour the industrial sector further ahead and therefore we expect industrial to outperform the other sectors with total returns of 6% p.a. over 2023-27. Retail will also do better than the all-property average of 5% p.a., while office returns will trail at 4.5% p.a..
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