We anticipate that commercial property markets in the euro-zone will deliver modest gains over the remainder of this year and next as the underperformance of many markets in the region’s peripheral economies begins to unwind. Yet the predominantly yield-driven nature of the current improvement in capital values highlights the risk that markets in the euro-zone’s core could prove vulnerable to any eventual normalisation of official and market interest rates. Deflation, or another shock that prevented the anticipated recovery in rental values from coming through over the next few years, represents a downside risk to the outlook, but is not part of our central view.
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