Economic reslience is fading
After a slightly positive first half-year, eurozone activity is likely to stall in the second half-year. The labour market should also lose momentum. However, the extent of this decline and an increase in the unemployment rate should be relatively limited given persistent recruitment difficulties.
The rate hike cycle is coming to an end
The further weakening of economic activity and lower inflation that we expect to see by the end of this year should prompt the Fed, like the ECB and the BoE, to stop raising their policy rates. However, a further tightening cannot be ruled out.
Investment still plummeting
All asset classes experienced a strong reduction. Logistics (-58%) was the most affected as prices were already expensive before problems arose. Offices (-62%) suffered as well as complicated pricing adds difficulties to a sector where structural change seems to be underway. Hotels (-26%) and retail (-43%) incurred the least declines.
Yields still expanding
The principal factor behind yield expansion is the change in the macro-financial environment. Persistent inflation is prompting more robust response from central banks. It is accelerating normalization of monetary policy. Bond yields are subsequently growing very rapidly, reducing the yield gap with real estate and prompting rethinking about the prices being paid for assets.
Office: Letting activity is remaining subdued
2023 letting activity is struggling to regain the volumes seen in 2022 when take-up returned to its long-term average. Take-up after 9 months shrank 22% relative to 2022. This decline is mostly due to a reduced number of very large transactions. Occupiers are looking for space optimization to meet hybrid working patterns and reduce costs.
The flight to quality continues
While hybrid work models are here to stay, workplace plays a key role in attracting and retaining talent, both in terms of space quality and location. Demand is also high for energy-efficient and sustainable buildings. These increasing quality requirements drive values up for modern buildings located in the most established districts.
