Where Do European Property Values Go From Here?

Economic Scenarios Euro area

Scenario 1: *Soft Landing (30% probability) • Russia’s invasion of Ukraine continues but does not escalate • Recovery in demand as consumer and business sentiment improves • Oil markets rebalance in 2023, allowing oil prices to drop • Supply chain issues continue to improve • Inflation pressures ease with inflation returning close to target in 2024 • ECB continues with increasing policy rates, pausing in Spring 2023 • GDP decelerates below 2% range but recession is avoided

Scenario 4: Stagflation (5% probability)

Scenario 2: Upside Growth (5% probability)

Scenario 3: Mild Recession (50% probability) • Russian invasion of Ukraine continues • Oil prices remain elevated for several more months before slowly coming down • Inflation continues to increase in the coming months, driven by energy and food prices • ECB hikes policy rate which ultimately causes the economy to slip into recession • Underlying strength of labour market keeps recession shallow and short, lasting only 2 quarters (Q4 2022 and Q1 2023)

• Russian invasion worsens, lasting longer than anticipated • Oil prices remain above $100 barrel through end of 2023, weighing on consumer spending • Supply-chain issues persist, sustaining higher inflation, inflation expectations de-anchor causing wage-price spiral • ECB initially slow to react, taking a much more aggressive stance thereafter, raising rates much higher • Euro area economy falls into a recession in 2024 • Euro area economy begins to recover in 2025

• Faster resolution of the Russian invasion of Ukraine • Quick recovery in demand as consumer and business sentiment recovers • Supply chain issues continue to improve, energy prices fall • Inflation pressures begin to ease • Economic growth slows in H2 2022 but gathers momentum in H1 2023 • In the short-term the ECB continues to increase policy rates, with rates higher than baseline, successfully curbing inflation without derailing the economic recovery

Source: Moody’s Analytics adjusted by Cushman & Wakefield Research; *Soft landing refers to the consensus forecast as of July 2022 Note: Probabilities do not add to 100% because there are chances of other scenarios occurring, such as a recession that is not mild, but also not consistent with stagflation.