Zachary Gauge
Head of Real Estate Research & Strategy – Europe ex DACH

European real estate faces a tough 2H22, as a necessary re-pricing adjusts yields to reflect the increase in debt costs and risk-free rates that have materialized, impacting returns in the short-term, while creating opportunities in high conviction sectors.

Zachary Gauge, Head of Real Estate Research & Strategy – Europe ex DACH

The economic outlook for the UK and eurozone deteriorated further over the course of 2Q22. An optimistic scenario is for a soft-landing, where economic growth slows significantly in 2023 but narrowly stays in positive territory on an annual basis. But there are significant downside risks of a full recession, particularly if gas supplies are rationed over the winter. The key drag on economic growth will come from inflation, which has consistently come in above expectations during 2Q22. Eurozone inflation reached 8.9% in July, whilst in the UK it hit 10.1%. Even at these levels further increases are anticipated in the coming months, particularly in the UK where revised energy caps could push inflation into the high teens in early 2023. The higher cost of living has already had a sharp impact on consumer confidence surveys and retail spending is expected to weaken significantly in 2H22.

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