The near-term economic outlook has weakened, though GDP in the region had already surpassed its pre-virus levels by Q3. Meanwhile, inflation is set to fall back next year, allowing most central banks to keep interest rates on hold. While the risks are to the downside due to the Omicron variant, this backdrop is supportive of a return to rental growth for retail next year and for further increases in office and industrial rents. Better rental growth and strong investor demand mean we think that property yields will fall over the next couple of years. However, the property upturn is likely to continue at a slower pace than in 2021. For one, rental prospects will be limited for offices and retail given structural shifts. In addition, rising bond yields will put upward pressure on property yields from 2023 in Oslo and from 2025 in the other markets, particularly for industrial assets where valuations are already stretched. Overall, industrial will outperform again next year, but returns are set to converge across the sectors further ahead.
Note: Central Bank Drop-In – The Fed, ECB and BoE are just some of the key central bank decisions expected in this packed week of meetings. Neil Shearing and a special panel of our chief economists will sift through the outcomes on Thursday, 16th December at 11:00 ET/16:00 GMT and discuss the monetary policy outlook for 2022.
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