A global indicator produced by industry body RICS, which captures the sentiment of occupiers and investors, shows the weakest readings in Europe since the global financial crisis.
The firm's Global Commercial Property Monitor has to go back to 2009 to find more dismal scores for Europe, which has witnessed a greater slide in sentiment than any other global region today, RICS states.
RICS’ global indicator shows a reading of -36 in Europe in Q2, falling from a relatively firm reading of -14 in Q1.
Indeed, both headline occupier and investment sentiment indices fell sharply during the second quarter of 2020, posting readings of -44 and -28 respectively across Europe.
Country and sector variations
All European markets covered in the monitor displayed a significant deficit in demand compared to supply in Q2, with the widest discrepancies reported in Romania, Austria and Italy.
Europe-wide, the outlook remains deeply negative within the retail sector, where forced closures of many physical stores and an accelerated shift towards online shopping have been hugely challenging for the more traditional retailers.
Indeed, rents and capital values are now both projected to see double-digit annual declines for secondary retail markets across Europe. Furthermore, an aggregate 62% of European respondents now consider the commercial real estate market to be in a downturn phase, up from 47% taking this view back in Q1.
Looking at the sector breakdown, while the outlook for rents and capital values is deeply negative across retail, it is more resilient for industrials in Europe. In particular, rents for prime industrial space are expected to hold steady on average, over the next twelve months.
Simon Rubinsohn, RICS chief economist, said: 'As the economic impact of Covid-19 has deepened, so too has the impact on commercial real estate. Sentiment among investors and occupiers has naturally weakened, with broad acceptance that rental and capital values will fall over the next year.
'What is clear, however, is that there will be no going back to the old normal, even after a protracted economic recovery and significant government interventions.
'Underlying trends have been accelerated by lockdowns, whether the global rise of ecommerce or remote working, coming to the fore, changing the nature of demand for many “traditional” commercial assets. We will see investors, landlords and tenants continue to adapt to a new reality – not least, in their approaches to office space.'
The impact of remote working
Meanwhile, remote working is expected to cause a lasting shift as many office-based roles have been forced into a period of remote working during the pandemic.
In instances where the move has seen efficiency maintained or improved, firms may be prompted to re-evaluate their office space needs, the survey suggests.
Elsewhere, RICS also calls on landlords and tenants to develop new relationships to deliver enhancements to boost workforce health and wellbeing.
