European Commercial Property

COVID-19 to hit property values by at least 8% in 2020

The ever-changing economic effects of COVID-19 mean that the impact on real estate markets is highly uncertain. It is clear that the sharp contraction in economic activity and deterioration in sentiment over the first half of the year will weigh heavily on rents and put upward pressure on property yields across the board. That said, if the virus is brought under control, we expect rental growth to bounce back next year and, aside from retail, yield rises will be more than reversed. However, a weaker recovery can’t be ruled out, which poses downside risk to the outlook.
Andrew Burrell Chief Property Economist
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Signs are positive but headwinds remain

Capital growth was solid in April at 0.5% m/m, although that reflected a slight reduction from the rate seen in March. Looking ahead, we expect the recovery in economic activity to continue which will support demand for commercial property. However, structural headwinds remain in the office and retail sectors, so any recovery is likely to be slow.

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Scandinavia & Switzerland: Upside risk to industrials

Capital value growth improved in Scandinavia and Switzerland in Q1, helped by the easing of virus restrictions and by the improvement in economic activity towards the end of the quarter. The uptick in the pace of Scandinavian industrial capital value growth in particular poses upside risk to our end-year forecast. Looking ahead, the faster pace of vaccination and falls in new virus cases point to a further rebound in economic activity. This will support the property recovery, although the structural headwinds from more online spending and firms adjusting their office space will weigh on retail and office performance.

28 May 2021

Non-Euro European Commercial Property Chart Book

Emerging Europe: Re-opening won’t stop values falling

The fall in all-property rents, dragged down by office and retail sectors, meant that annual capital value growth remained in negative territory in Q1, despite the surprise fall in yields. Looking ahead, while the faster pace of the vaccination rollout and fall in new virus cases should pave the way for a swift rebound in economic activity, the recovery in property values is likely to prove much slower. Indeed, despite the improved occupier outlook, structural headwinds from more online shopping and remote working will continue to weigh on the office and retail sector. In turn, we expect prime rents in these sectors to extend their declines this year, outweighing any rental gain in the industrial sector. And we don’t expect the dip in yields in Q1 to be sustained, as higher retail yields will push up all-property yields. As a result, all-property capital values are set to drop again this year.

26 May 2021
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