Citywire for Financial Professionals
Stay connected:

View the article online at

Eurozone commercial property set for a fall, Bootle warns

Eurozone commercial property will suffer as the eurozone slumps back into recession, warns economist Roger Bootle.

Eurozone commercial property set for a fall, Bootle warns

Eurozone commercial property is expected to underperform the rest of Europe through the remainder of the year and into 2013, with economist Roger Bootle warning that capital values will decline in the single currency bloc over the stretch.

With the eurozone expected to slide back into recession, the weak economic underpinning for the region amid the uncertainty around the sovereign debt crisis suggests further falls in capital values, the Capital Economics founder said.

'No positive returns' from eurozone property

‘On average in 2012 and 2013, we still do not expect any eurozone property market to deliver positive total returns,’ Bootle (pictured) said. ‘Capital values have been slower to respond than we had anticipated.

‘Nevertheless, with most eurozone economies now contracting, and the outlook highly uncertain, the conditions seem to be in place for rental values to fall and for yields to rise.’

‘We think that rental values will fall across all three of the main commercial sectors. Unfortunately, recovery prospects for 2014 and beyond seem muted.’

However, within the broad-brush negative picture being painted, there are a few rays of light with the performance of different markets expected to be quite strongly divergent.

Northern Europe fares better 

Bootle highlights the core markets of Germany, the Netherlands, Austria and Finland as the most likely to hold up best, while the huge economic contractions in process in the southern states of Spain, Portugal and Greece will predictably see those markets suffer the sharpest losses.

In one sense, the economic indicators are throwing out mixed signals. Historically, eurozone commercial property is attractive on a comparative yield basis with benchmark 10-year bunds. But that metric is clearly distorted, and with many investors expecting bund yields to rise from here, converging with peripheral European sovereign debt, the pressure on property yields is only likely to be upward.

The question is how severe will this be compared with the financial crisis?

‘We do not expect the kind of spikes in property yields that characterised the previous downturn,’ Bootle said. ‘For one thing, property-to-bond yield spreads are between 20% and 30% wider than at the height of the recession.

‘Accordingly, we expect yields to drift, rather than surge over the next 18 months. In the core group of eurozone markets, yields may rise by no more than about 40 basis points (bps) by the end of 2013. Elsewhere, yields may rise by between 50bps and 90bps.’

Investment activity in decline

One factor that could prove supportive to the commercial property market is the lack of new development that has taken place this year. Research from CBRE shows that investment activity in the first quarter was down 12% year-on-year. At a little over €15 billion, that was the lowest level since the third quarter of 2010. Similarly, deal volumes fell by 25%, with the secondary market highly illiquid.

Sign in / register to view full article on one page

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire Guide to Investment Trusts

In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

More about this:

Look up the funds

More from us


Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add to your safe senders list so we don't get junked.

Sorry, this link is not
quite ready yet