European real estate investment markets are in a good position to deal with the “double trouble” of lower GDP growth and higher inflation.

In its mid-year European outlook report, AEW has said that it expects stagflation to settle in to European economies, partly due to supply chain disruption caused by both the sanctions against Russia and the continued COVID-19 lockdowns in China. Both events are slowing the post-pandemic global GDP growth recovery and contributing to higher levels of inflation.

The report says that euro zone bond investors have now priced in some interest rate hikes for 2023 and a tapering of quantitative easing for late 2022, as above-target inflation endures. AEW’s base-case scenario assumes only limited and modest interest rises, given that hikes have been ineffective against imported commodity and energy inflation. As a result, it believes that government bond yields will remain “lower-for-longer”.

With slower GDP growth expecte