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We have upgraded our total return outlook for the European real estate market. While this may seem at odds with the recent result of the U.K. referendum on E.U. membership, we believe that the combination of a reduced supply pipeline, looser monetary policy and an increased desire for safe-haven assets will more than compensate for what is expected to be only a modest hit to occupier demand.
While the referendum is likely to have short-term economic implications, over a five year period the outlook for Eurozone GDP growth has been revised down by just 10 basis points per annum. Understandably the impact is set to be greater in the United Kingdom, which is not expected to enter recession but is forecast to see a marked reduction in growth. Even here, the combination of looser monetary policy, weaker sterling and subject to clarity over the Brexit settlement, we should see growth accelerate by the end of the decade.
On average across Europe, we are expecting supply and demand fundamentals to remain balanced in the office and logistics markets. Continued office-using employment growth should support robust demand once again this year, and in the logistics sector strong supply chain activity is expected to lead to an increase in take-up. Despite a restrained pipeline of new shopping centre space, average vacancy is not expected to see any great improvement. That said, the gap in performance between large dominant centres and smaller secondary stock is expected to continue, and the outlook for the best centres remains positive.
Source : Deutsche Asset & Wealth Management
