Higher interest rates and a weaker outlook for economic activity led to a more significant rise in property yields in Q3. While quarterly rental rises remained solid, particularly for offices and industrial, this meant that all-property capital values fell by about 4.5% q/q – the sharpest drop since 2009 Q1. (See Chart 1.) Further falls are likely in the coming quarters, with stretched valuations meaning yields need to rise more and the upcoming recession set to weigh on rental growth. Overall, we have pencilled in a 15% peak-to-trough fall in euro-zone all-property capital values, though some markets and sectors will see more significant declines.
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