The latest economic and property market data from the single currency region sit comfortably with our forecasts that commercial property in the euro-zone faces a further year of stability in rental values and initial yields. Our view is that euro-zone GDP will stagnate in 2014 and rise by just 0.5% in 2015, far below the growth required to support a strong recovery in occupier demand. Uncertainty in the economic outlook should prevent property yields in the region's core markets from rising in the near term, but since they have fallen to such low levels, they are vulnerable to an eventual tightening in monetary policy. Attention has recently turned to Spain and Italy. Certainly, these markets may have scope for medium-term outperformance. But for now, the still weak economic backdrop suggests it is too soon to look for sustained recoveries in capital values, especially in Italy.
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