Euro-zone

Belgium

Sector fortunes to shift

While the Delta variant has slowed economic activity in other parts of the world, this has not yet been the case in the euro-zone, and we are cautiously optimistic that the bloc will continue to grow. This will support the property market upturn, albeit offices and retail face structural challenges that will limit the rental recovery. Stronger rental prospects for industrial mean we think that the sector has the most scope for yield compression in the near term, though strong demand for prime assets should allow office yields to edge a bit lower too. However, further increases in yields will make some retail assets look increasingly attractive by year-end, prompting small yield falls in the next few years. The upshot is that industrial is expected to outperform over the next couple of years, but stronger capital value growth beyond 2022 will result in retail returns emerging as the strongest.

16 September 2021

Prime Brussels offices to fare better than most

More remote working is pushing all occupiers to reassess their office space, but we think that rental growth for prime offices in Brussels should hold up better than the wider market.

22 July 2021

Strong rebound and temporary rise in inflation

The euro-zone is on the way to an almost full recovery. We expect Germany to regain its pre-pandemic level of activity later this year and the tourist-dependent southern countries to do so next year. The Delta variant may lead to some voluntary social distancing or self-isolating and perhaps limited restrictions over the winter, but we doubt that it will derail the recovery. Inflation will rise further than most expect in the coming months due to rising input costs and supply bottlenecks. But with wage agreements and inflation expectations remaining low, it will drop back and stay lower than most expect over the medium term. The ECB is likely to step up its standard Asset Purchase Programme substantially when its emergency purchases end next March and leave its deposit rate at -0.5% until beyond 2025, which is much later than investors expect.

16 July 2021
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Drop back in bond yields takes pressure off ECB

The fall in sovereign bond yields over the past week may make things a little easier for the ECB Governing Council when it meets on 10th June. We think it is likely to replace its commitment to make “significantly” higher bond purchases than in Q1 with a less specific commitment to keep financing conditions favourable. Next week we expect to learn that inflation got very close to 2% in May (data on Tuesday) while the final PMIs for May will show a big improvement in Spain and Italy (Thursday). Retail sales data for April (Friday) will probably fall in m/m terms as a lot of shops were closed in France. Finally, note that the Capital Economics London “office” will be closed on Monday.

EC Survey (Apr.) and Euro-zone Bank Lending (Mar.)

The largest-ever slump in the EC Economic Sentiment Indicator in April comes as no surprise but, along with the 3.9% q/q fall in Belgian GDP in Q1, it underlines the depth of the euro-zone’s recession.

ECB to keep pushing on a string

We expect economic growth to remain sluggish this year as external demand picks up only slowly and domestic demand softens. Employment growth is slowing, which will cause household incomes and spending to weaken, and investment intentions have slumped. Germany’s industrial recession looks set to persist during the first half of the year, and its services sector to lose momentum. Meanwhile, Italy is still close to recession, but France and Spain should continue to outperform. We suspect that core inflation will drop back to around 1% over the coming months, prompting the ECB to ease policy in the second half of the year.

Eight quick points about the European elections

Projections of the results of the European elections confirm that pro-European parties will continue to have a clear majority in the European Parliament (EP) itself, so little will change at EU level. But there will be some fallout for national politics, notably in Italy and Greece.

Troubling times for Belgian retail

Belgium’s retail sector is under significant pressure from both cyclical and structural forces. As a result, we expect rents to fall again in 2019 and yields to tick upwards slightly.

6 February 2019
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