Scandi & Swiss: Shallower downturn, but returns to lag

Property values fell sharply in Scandinavia and Switzerland last year, but with valuations still stretched and financing set to remain challenging, we think yields will climb higher. And with economic activity weakening and supply increasing, rent growth will slow sharply across sectors this year, while structural changes will continue to weigh on offices and retail over the forecast. In contrast to the euro-zone, we expect capital values to fall more sharply this year than last, though the total peak-to-trough decline should be milder in Scandinavia. Values should turn a corner at the end of the year as interest rates top out and bond yields ease back, but the recovery will be relatively weak. At the sector level, industrial returns are forecast to exceed the all-property average of 5.1% p.a. over 2023-27, while offices will trail.