Stefan Wundrak, head of European Research at TH Real Estate, said: 'The financial market volatility in early February, which included an upward trend in bond yields, rekindled the discussion of the era of real estate yield compression nearing its natural end.'

'As long as the correction can be contained, it should be greeted as a welcome start to an orderly normalisation. For real estate, it may come just in time before markets move cap rates to such extremes where any disruption could only end in a hard landing.'

TH Real Estate reports that investment activity was up in 2017 compared to 2016, but fell short of the record year 2015. The big three markets of Germany, France and the UK all recorded higher volumes along with smaller markets. Most remarkable is the recovery of the UK market, despite Brexit uncertainty. This was predominantly overseas investors lifting volumes in the UK. This is in line with Germany, where for the first time cross-border buyers have deployed more than domestic groups.

The research highlights logistics in Southern Europe and the Netherlands as the top investment recommendation. German offices have also performed well and occupier dynamics point to further upward pressures in the key centres. In fact, gross take-up rates are way ahead of long-run averages, by 50-60% in the big four German markets. European retail spending in 2018 is forecast to be in line with that of 2017, which saw sales grow to about 2.3%.

'In terms of Eurozone growth, 2017 brushed aside geopolitical concerns to grow by an impressive 2.5%, demonstrating the best growth results in a decade,' Wundrak added. 'A strengthening euro may temper output, however a healthy mix of increased consumption, investment and exports bodes well for 2018.'