We see euro-zone GDP growth slowing this year due to the drag from higher inflation and political uncertainty. With no monetary policy tightening on the horizon, further falls in prime yields will continue to drive capital values higher over the next two years. However, the ability of a market to generate rental growth will start to play an increasingly important role in differentiating between the best and worst performing cities. Although we think that there is still scope for prime property yields to fall further, we expect those declines to be far smaller than in recent years. At the euro-zone all-property level, compared to the 62bps fall in 2015 and 31bps fall last year, we are only forecasting a 27bps cumulative decline over the next two years. Nonetheless, this will still drive capital values higher, before becoming a headwind towards the end of the forecast period. Indeed, we forecast capital values to start declining in 2020.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services