Where Do European Property Values Go From Here?

Overview

The economic outlook for the euro area has turned more dismal with downside risks increasing. Signs of the market reacting to a changing economic outlook and elevated levels of uncertainty are beginning to emerge. Uncertainty surrounding inflation, persistent labor shortages, Russian invasion of Ukraine, and the risk of an ECB Policy error are some of the challenges investors are having to navigate. To help our investor clients think through the implications of the shifting macro environment, we modeled how net operating income (NOI), yields, total returns, and thus property values across sectors will perform under four unique economic scenarios across Europe*:

• Scenario 1: Soft Landing (30%) • Scenario 2: Upside Scenario (5%) • Scenario 3: Baseline - Mild Recession (50%) • Scenario 4: Stagflation (5%)

*For all variables except NOI, we have used the European aggregate from the MSCI quarterly Index. Note: Scenario probabilities do not add to 100% because there are a variety of other scenarios that could unfold outside of the four presented in this report.