Fall in Bund yields does not change weak property price outlook

The sharp fall in 10-year German Bund yields since the end of Q1 has pushed all-property/Bund yield spreads in the euro-zone to new highs. Clearly, property yields now incorporate some allowances for negative rental growth expectations, above-average property risks and below-average liquidity. However, we do not think that these allowances have yet gone far enough. Thus, our forecasts that European all-property yields will rise over the next two years appears to be on track.