Europe’s property slump easing as rents increase, report says

AFTER almost two years of falling valuations, Europe’s commercial property slump is easing up.

Values fell just 0.5 per cent in the three months to March, a significantly slower rate of decline than the 3.4 per cent drop recorded in the final quarter of last year, data compiled by Altus Group show. While the figure represents the seventh straight quarter of shrinking values, the modest decrease represents the best performance since June 2022, Altus’ data show.

Property values have been hit by higher interest rates as buyers demand better returns in the face of higher yields on low-risk government debt. Some of that impact has been offset by rising rents but uncertainty about the timing of interest-rate cuts has drawn out the slump, which began in the aftermath of Russia’s invasion of Ukraine in early 2022.

“The level of value decline eased off notably in all sectors of the market,” Altus head of performance analytics, Phil Tily, wrote in a report on Wednesday (May 15). “The market can be divided into two camps, with industrial and residential value declines easing off the most while retail and office values continued to fall more than average.”

Warehouses recorded the best cash flow performance during the quarter, with a 1.4 per cent increase, helping mostly offset the impact of higher yields and leaving values just 0.2 per cent lower. Anaemic cash flow growth for office and retail properties by contrast meant values fell by 0.8 per cent and 1.1 per cent, respectively.

Altus’ calculations are based on a pool of more than 29 billion euros (S$42.4 billion) of property in core pan-European open-ended property funds. BLOOMBERG