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

Industry holds back otherwise strong recovery

This week provided yet more good news on the euro-zone, with case numbers falling consistently in some countries, vaccine rollouts on track, and both the survey and official data suggesting that the economic recovery continues apace. But international tourism is still hampered by travel restrictions and industry remains a weak point, as supply constraints weigh on auto output in particular. Indeed, data out next week are likely to suggest that euro-zone industrial output contracted in Q2.

6 August 2021

A primer on European residential property

Less favourable demand fundamentals and less scope for yield compression mean that European residential returns are likely to be lower in the coming years than over the previous decade. An analysis of the relative outlook across selected western European markets suggests that the Netherlands and the UK offer the best prospects.

In view of the wider interest, we are sending this European Commercial Property Focus to clients of our UK Commercial Property service.

27 July 2021
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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.

Is WFH a double-edged sword for Dutch offices?

A more favourable economic outlook should support occupier demand and thereby prime Dutch office rents over the next few years. And while the shift to more remote working poses a risk, we think that the Netherlands might be better placed to deal with the impact.

31 July 2020

How quickly will euro-zone activity return to normal?

Although restrictions are set to be lifted in the coming weeks, economic activity in the euro-zone will remain significantly below pre-virus levels for a long period. Consumers are likely to be wary of crowded places, some restrictions will remain in place for many months and others may end up being re-imposed.

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.

Still value in shopping for logistics in the Netherlands

The Dutch retail sector is grappling with changing consumer habits and will struggle to provide a positive return to investors. But, with online sales set to grow rapidly and supply chains still adjusting, we expect logistics property to perform well in the next few years, returning around 7% p.a. in 2020-22.

11 November 2019
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