The fair total return was significantly lower in Q3 for the 120 markets covered in our Fair Value Index analysis compared to our previous forecast (April 2022). Over the past six months, Government bond yields have risen across all countries within our coverage (with the exception of Turkey), mainly due to concerns over high inflation and monetary tightening.

There has been a noticeable slowdown in transactional activity with the third quarter volumes down by 37% in comparison to the levels seen a year ago. This slowdown has been felt across all sectors. According to RCA, the number of active buyers and sellers has fallen to a nine-year low. With a lack of transactional evidence, and the uncertainty surrounding the outlook, buyers and sellers are anticipating the market to adjust.

Over the latest three months, prime headline rents increased by 1.9% for offices and 4.2% for logistics, a slight acceleration from the prior quarter. Retail rents registered a moderate decline of -0.1%, a sign of the increasing impact of inflation on consumer sentiment being felt across most markets.

Our latest forecasts paint a mixed picture for 2022, with a handful of office and logistics markets seeing positive capital growth, reflecting upgrades to rental growth. For 2023, capital growth expectations for retail and offices have been downgraded, as the European economy enters a mild recession. Key European logistics markets are still expected to witness positive capital growth in 2023, as rental growth remains positive albeit slowed from the acceleration witnessed in 2022.

As a result, the majority of the 120 markets covered in the analysis are classified as fully-priced (99%). As we continue to see the cost of debt rising it is no surprise that the majority of the markets are fully-priced considering a purchase in Q3 2022. Sector-level data revealed the offices and retail sectors across the markets we cover are ‘fully-priced’, with the exception of logistics where one market is ‘fairly-priced’ and the remainder are ‘fully-priced’.
 

About the European Fair Value Index 

Cushman and Wakefield Fair Value Index^TM offers investors insight into the relative attractiveness of current pricing in 120 prime office, retail and logistic property markets across Europe.

The Index score ranges from 0 to 100; a scores close to 100 indicates that most of the markets covered by the index offer attractive returns (Underpriced); and scores close to zero indicates that markets covered offer inadequate returns (fully priced).

Markets are categorised by comparing fair and forecast returns. Markets estimated to be more than 5% under-valued are classified as Underpriced. Markets estimated to be more than 5% over-valued are classified as Fully-priced. Markets trading in between this range are classified as Fairly priced.

Forecast returns are estimated using C&W Research’s extensive market forecasts, which encompass rent and yield forecasts for all 120 European markets.