Weak occupier fundamentals to drag down property

The current lull in the debt crisis has come too late to prevent a marked deterioration in economic and occupier market conditions in most euro-zone property markets. And the slowdown in economic growth already seen suggests that rental and capital values are likely to fall to some degree this year. But at the margins, the recent improvement in sentiment towards the region should have some beneficial effects for property markets. Reflecting this, our latest forecasts assume slightly smaller rises in yields in many markets, and thus smaller falls in capital values. We think that property in Germany will fare relatively well, but are concerned that property values in France are too high given the much weaker economic outlook.