A significant slowdown of economic activity
Given the current uncertainties and the deterioration in the business climate, we expect negative GDP figures in Europe for the rest of the year. As a result, we are expecting a significant slowdown of the economy, but not a deep recession. Indeed, the signals from the job market are reassuring as the unemployment rate is still low and stable.
A more persistent inflation
The elevated level and generalization of inflation to core products have made it persistent and therefore difficult to reduce. Although the headline inflation should decelerate by the end of the year, we expect a more persistent core inflation in 2023 and 2024.
Investment still high
On a rolling-year basis €304bn was invested in Q3 in Europe. Activity clearly declined in Q3 2022 (-3% vs Q2 2022), although growth remains positive on a 9 month basis. Historically the 4th quarter is very active in real estate investment, which may ensure 2022 shows positive annual growth overall.
Yields are expanding
2022 shows the first strong signs of expansion and it is affecting all the main sectors of real estate. The principal factor behind yield expansion is the change in the macro-financial environment. The persistence of inflation is prompting more robust response from central banks to normalize monetary policy.
Office: letting activity sustained in Q3
8.3 million sqm was taken-up since January 2022 in Europe’s 25 main markets, rising significantly compared to the same period last year (+29%). Most of markets surpassed long-term average driven by a robust post-crisis demand for modern workspaces.
Prime rents are growing again
Having sustained value over the crisis period, prime office rents in the key cities are now growing again. The very low availability of prime assets and the appeal of high quality buildings located in the most sought-after districts drive values up.