Deflation could hit European offices hard – DTZ

European office property could be hit hard in the event of deflation, with values predicted to fall by 24%.

The scenario, analysed by DTZ, would see commercial property suffer if Europe slipped into deflation, with significant declines in rent and value. Euro-zone office markets would be overvalued by 27% on average at current prices.

The Deflation and Commercial Property Insight Report focuses on the impact of deflation on 10 key European office markets. In London, office rents and capital values would make current prices 10% overvalued.

Euro-zone inflation fell further to 0.5% in March. Although not part of DTZ’s central forecast, the agent said deflation presents a “serious risk” to the European commercial property market.

Magali Marton, DTZ head of research EMEA, said: “At present the likelihood of a deflation scenario playing out is only 15%.

“However, we think that it is useful for investors and occupiers to understand the impact a deflationary episode might have should deflation become a reality.”