European property values tick down for second year running

European commercial property values have declined for the second consecutive year, according to the Altus Pan-European dataset, dragged down by the offices sector. The most recent analysis from the asset and fund intelligence provider has revealed that European property market valuation in the second quarter this year was 0.06% below that of the first quarter. This fall is the smallest downward revision since values started falling back in Q3 2022. The analysis, based on an aggregate dataset of core pan-European open-ended diversified funds covering 17 countries with a total market value of €29bn (£24.7bn), have also found the values have now fallen by a total of 16.6% over the past two years. According to Altus, the move signals that period of decline is potentially drawing to a close. Phil Tily, senior vice-president at Altus, said: “The minimal decrease in Q2, coupled with the recent interest rate cut, points to more stability ahead as value declines are moderating significantly.” Despite the European Central Bank’s 25 basis point cut in the base interest rate in June, yields continued to move out for a ninth consecutive quarter, with low-single-digit yield increases recorded across all sectors. Across the four main property types, offices remains the one main sector on a downward trajectory with values slipping by 0.8% over the quarter. The UK and the Netherlands office markets were among the worst performers, where static or reduced market rents coupled with increases in operating expenses resulted in cash flows being scaled back over the quarter. In contrast, industrial’s gains continued to be the strongest, with values up by 0.5% over the quarter, driven by an above average 1.4% improvement in market rents. Industrial values rose in most countries across Europe, with the UK registering one of the largest increases. The trade-off between cash flows and yields was slightly less pronounced in the residential sector, with a 0.3% increase in value over the past three months. Retail property values added 0.2% over the second quarter this year, thanks to the strong performance of the parks and warehouses. Supermarket values also edge upwards, balancing out further, albeit minimal, write-downs among shopping centres and high street assets. Elsewhere, extending beyond the four main sectors, property values rose by 1%, with most of the upside attributed to green shoots among hotel assets built on strengthening revenues fundamentals. Image by OlenaT/iStock