Equities' sell-off signal slowing capital growth in Europe - Savills

The current sell-off in European listed property shares does not indicate an imminent correction in Europe's commercial property market but it does suggest that capital growth will decelerate over the next six month, according to Savills Investment Management.

'In our view, the recent decline in real estate securities is simply a reflection of negative sentiment,' said Irfan Younus, senior research analyst at Savills IM. 'We continue to believe that European commercial property markets are well-supported by economic fundamentals and that while the sell-off in European listed property shares will likely slow European property growth, equity markets shouldn’t expect a fall.'

Savills' view is based on a number of factors, notably, the absence of distressed credit and the limited supply of quality space, combined with the current support for the property market from an improving job market, muted inflation and steady economic growth, which should provide increased support for occupier markets over the coming year.

'We anticipate capital growth to decelerate over the coming year, with attractive opportunities to be found in property with bond-like characteristics,' added Younus.

While investors should expect to see a deceleration in capital growth, given the spread with sovereign bond yields, investors should be well-compensated for investing in real estate with the risk premium currently significantly higher than its long-term historic average.