The Covid-19 crisis is set to force a fall in property values of at least 8% in Europe, with UK assets suffering a 10% revaluation, according to new data from Capital Economics.
The latest research suggests that GDP growth is likely to contract sharply across the Eurozone in H1, although activity should rebound later in the year. Looser monetary policy is expected to keep government bond yields low by historical standards.
In terms of sectors, the crisis is expected to accelerate structural changes in the retail sector this year, causing a sharp fall in prime retail rents and increases in yields. An improvement in sentiment and economic conditions in 2021 would reverse some of the decline. That said, the retail sector will still significantly underperform over the next five years, Capital Economics predicts.
Beyond retail, the outlook is rosier, according to the report. Office markets may see increased vacancy and rental reductions, but these should be short-lived, while industrial markets will benefit from an uptick in e-commerce and storage needs, with industrial returns potentially outperforming.
UK not ok
Specifically for the UK, Capital Economics said that all-property capital values would see a severe, immediate impact in the second quarter of the year, with the remainder of 2020 also underperforming to generate returns of minus 4.8% for the full 12 months.
In analysing the UK position, the report concluded: 'Forecasting in the current environment is clearly difficult as developments are fast moving and any estimate is liable to date.
'But based on our current base case, we think that there will be a sizeable, if temporary, correction in property values this year, but not a crash.'