Further value falls to come, but should reach trough in H2

Further near-term yield rises will push property values lower in the coming quarters, but better valuations, falling interest rates and improving economic activity suggest a trough should be reached later this year. That said, the recovery will be very weak by past standards. Still-narrow spreads mean there is little scope for property yield compression. And structural headwinds will keep rental growth weak in the office and retail sectors. Offices are expected to be the worst performing sector with returns of 5% p.a. in the euro-zone over 2024-28. Retail does slightly better with returns of around 5.5% p.a. while a brighter rent outlook means industrial leads the way with annual returns of 7.5%. 

Note: We will be discussing the outlook for European commercial real estate markets in a 20-minute online briefing at 10am GMT on Wednesday 10th of April. (Register here.)