Higher yields to weigh on property values in the near term

Higher interest rates brought about by the ongoing energy shock are likely to push up prime property yields and hit capital values in the coming quarters, though rental growth should remain resilient. However, if we are right that interest rates will fall back next year, we expect some of the rise in property yields to be reversed. Near-term strength in rents will prevent prime office values falling, in contrast to the other sectors. But we expect office rental growth to wane further ahead. That will leave industrial the outperformer over 2026-2030, given high income returns and solid rental prospects supported by the rise in online spending. Overall, we forecast euro-zone industrial returns of around 7.5% p.a. over 2026-30, compared with 7% p.a. for offices and 6% p.a. for lower-yielding retail.