Era of low interest rates will keep core market yields down - C&W

Prime property yields in the eurozone are set for a period of stagnation as the likelihood of interest rate rises in the short term recedes, according to research from Cushman & Wakefield.

C&W’s latest European Fair Value Index found that increasing numbers of markets are becoming fully priced, leading to yield compression in the core markets. The overall Fair Value Index figure for Europe fell from 62 to 55 in Q4 2015, meaning opportunities for investors have diminished.

With interest rates now unlikely to rise in the eurozone until 2018, prime property yields are likely to remain at their current levels until at least 2017/18, the report said.

Investors will have to look to the periphery for better yields, with the CEE and Baltic regions containing the highest share of underpriced markets. In contrast, Swiss markets continue to offer slim pickings, with prime yields of between 3.0% and 3.5% and weak rental growth prospects.

The majority of markets in Germany are classed as fully priced, while the UK still has 19 fairly priced markets, C&W reported. It said the index was likely to bottom out at around 50 as economic growth translates into rent rises.

Fergus Hicks, global head of forecasting at Cushman & Wakefield, said: ‘We expect the European Fair Value Index to decrease in the short term as investor demand continues to push property yields lower and attractive investment opportunities diminish.

‘Moreover, with further policy easing likely in the eurozone, we do not expect any rises in European property yields until 2017/18 at the earliest. The office and retail indices are both expected to bottom out this year, while we expect industrial to reach its low only at the end of the forecasting period.’