An Increasing Attraction
The pace of decline in capital values across Europe is beginning to slow. We still expect another weak 12 months for property market returns, driven by sharp falls in rental levels and further falls in capital values, before the market fully recovers. The United Kingdom has already repriced significantly, with capital values having fallen by some 45 percent since summer 2007, but is now stabilising. Capital values in the euro zone will continue to fall, but at a slower pace. Over the next five years, we expect UK property to outperform, followed by the Nordic region. Prospects for central Europe remain weakest due to sharp economic contraction in that region and the withdrawal of capital by foreign investors.
European property investment volumes appear to be stabilising, albeit at very low levels. Debt-backed investors, in particular, are net sellers, while other investors continue to be cautious of the weak