The euro-zone’s economic problems show few signs of easing and a rapid recovery in economic growth and job creation over the next few quarters seems unlikely. The good news is that the dip in bond yields over the first half of the year has lent additional support to property yields. Even so, the potential for yield compression to continue to provide a boost to capital values is limited. And with occupier demand and rental value growth likely to be constrained by the lacklustre economic backdrop, we find it hard to imagine a material improvement in the pace of capital value growth for the foreseeable future. That said, income returns should be sufficient to mean that most markets deliver positive total returns over the forecast horizon, with industrial property and property in the peripheral markets most likely to outperform.
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