Atisreal predicts recovery in 2012

Europe's capital values are forecast to fall by a further 12.3% in 2009 but will eventually bounce back in 2010, booking growth of 3.3%, according to Atisreal's new Economic Forecast research report. The real jump in capital values, however, is not expected to take place until 2011, the report concludes, adding that Europe's capital values will grow then by 11% following recovery in the financial markets.

Keith Steventon, Atisreal's head of research, said: 'We believe 2012 could see a significant improvement in capital values, leading to very high total returns as the market comes back. However, at the end of 2012 capital values will still be over 30% lower than at the end of 2006 and just below where they were at the end of 2003. Rental values will be 13% lower at the end of 2012 than at the end of 2007, their peak year. This is encouraging, but it not a miracle return to the boom years.'

A weakening economy will result in rents falling by an average of 9.3% in 2009. Continued re-pricing in 2009 will cause City office capital values to fall by 18% and rental growth will also be very poor, falling by 27.2% this year and by 16% in 2010, due to the increase in unemployment in the financial sector. However, rental growth will increase by 2.6% in 2012 and by 5.3% in 2013. The West End will also experience a decline in rents, falling 15.7% in 2009 and 6.5% in 2010, with growth predicted to return in 2011. Overall the office sector will not see rental growth until 2012.

The South East offices market seems to be faring better, with rental growth expected to dip 9.5% this year, 4.5% in 2010 and growth of 5% in 2011.

In the retail sector capital values will fall by 12.5% in 2009 ahead of an overall zero growth rate in 2010, with the pace of growth set to pick up in 2011 to 8.1%. On the rental side, Atisreal does not expect growth to return before 2012 with -5.8%, -4.9% and -0.2% in retail rental growth predicted for 2009, 2010 and 2011 respectively.