Where Do European Property Values Go from Here?

Economic indicators all point to weakness, with the chances of a recession in the euro area rising. In our baseline scenario, Cushman & Wakefield now assumes a mild recession beginning in Q4 2022 with three-quarters of negative growth, before returning to moderate growth in the second half of next year.

Although a recession looks inevitable it is likely to be ‘relatively mild’ largely due to the resilient labour market and the anticipated fiscal measures. Moreover, healthy corporate and bank balance sheets will help contain widespread job losses which is why we don’t expect a profound hit to activity and employment. However, as the region remains highly vulnerable to disruptions in oil and gas markets the risks are skewed to the downside.

In our baseline scenario (mild recession), we estimate all property values will decline by approximately 18% next year, ranging from 10% to 20% depending on the product type.

Market volatility creates opportunity. Now is precisely the time to revisit real estate portfolio strategies to diversify and maximise returns. We offer investment themes towards the end of the report.

Government bond yields have moved significantly higher in 2022, from hovering just above 0% to the mid-2% range. Given the historical relationship between bonds and real estate (which typically move in tandem), we assume that yields will eventually follow government bond yields higher to bring the spread back into a range that is more consistent with the historic norm. As NOI growth slows due to the recession, this will place downward pressure on property values.