European commercial property outlook

While there are some lingering doubts about the strength and uneven nature of Europe’s economic recovery, both the EU and the Euro area are poised for positive growth in 2015.

Downside risks include weak growth, persistently high unemployment, geopolitical tensions and possible deflation in some areas. However, growth continues to improve on the whole, while unemployment appears to have peaked and is edging down in many places.
Regarding inflation, while some countries are experiencing price falls, our view remains that there will be a lengthy period of low inflation rather than outright deflation. The recent downward trend in prices has been largely due to lower food and energy costs and surveys show that consumers still expect prices to rise in the medium term.
Importantly, the European Central Bank has finally taken action to try and stimulate growth and raise inflation, with interest rate reductions, cheap loans and the purchase of asset-backed securities.

With European interest rates expected to remain very low (or even negative) for the foreseeable future, property yields continue to look attractive. In addition, while economic growth is forecast to remain muted, the steadily falling supply of prime space should help rental growth to re-emerge more widely in 2015, thereby further fuelling investor demand.

The really good news for both occupiers and investors is that rents in most markets remain lower than their pre-recession peaks – in some cases significantly below. This should provide a further boost to activity in 2015, with more occupiers looking to take advantage of good deals, while investors will seek to cash in on better rental growth prospects as the economic outlook continues to improve.

Here you can find the complete Report from Knight Frank in pdf : European commercial property outlook  2015

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