Market Outlook for 2017
Risk and volatility will be with us throughout 2017 but real estate should still have the wind at its back, at least for the best assets and locations. Across Western Europe, we expect prime yields to fall 30-40bps, rents to edge up 2-3% and European investment volumes overall to rise 6% as profit taking frees up opportunities.
With growth patterns increasingly differentiated, 2017 will be a year of tiers as some investors, and indeed occupiers, focus on tier 1 gateway cities but others look to tier 2 markets, typically with an aversion to macro risk making them maintain a focus on the better managed and more stable economies.
The key areas offering well-balanced growth look to be:
- Germany, led by Berlin, as well as the Nordics, followed by Spain, notably in Barcelona and Madrid.
- Paris will continue to outperform France as a whole and despite its slow overall recovery should be a target for investment, helped by its depth of infrastructure spending and possible promise of reform.
- London will remain a magnet for capital despite the slowing impact of Brexit, and selectively, some UK regional cities offer good potential courtesy of their current yield pricing and long-term growth potential.
- CEE markets will merit more attention, offering a yield advantage and catch up growth potential. However, long-term players will be alert to less open and market friendly policies emerging in some areas while the opportunistic will be seeking new areas of potential in markets such as Romania, Hungary and Bulgaria and, for some, Russia.
In summary, real estate will offer good risk adjusted returns in 2017, but only for investors who pay close attention to what occupiers actually want.