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Stefan Wundrak

Expect yields to get even keener

​Stefan Wundrak (Director of Research) discusses investment trends across European markets.

​With interest rates remaining low for the time being, investment trends are set to continue. In core markets such as London, Paris, Stockholm and the German "Big Five", extremely keen pricing faces further upward pressure. Southern Europe will continue to attract attention as long as the economy remains on track for stabilisation and there are not any significant political upheavals. Investors are less jumpy with regards to crossfire from Eurozone capital cities compared to the general nervousness of 2012. This could mean that the investment window to acquire assets with significant yield shift potential and a secured income stream in Italy and Spain could close in less than a year.

Even if the eventual rise in interest rates is not imminent, investors may start to analyse the potential impact of a rise on different markets. In the European periphery, yields are too high to be negatively affected by a changing interest rates environment, particularly as the Eurozone will not see rising rates until the hardest hit countries have returned to a firm footing and delivered some GDP growth.
Among the currently low yielding countries in Northern Europe, the risk is unevenly spread. London and Paris, which are more deeply integrated in financial markets and boast a higher share of sophisticated investors, will be the first to feel the impact when financial markets finally turn direction. However, both Paris and particularly London are more likely to deliver on rental growth which should cushion the impact of rising interest rates. Yields in Germany and Austria have, in the past, been the least sensitive to changing interest rates, although not completely immune, with little help from rental growth to be expected.
The most difficult case is Sweden; current yields appear particularly low in the light of the recent rise in the bond yield (to 2.5% in early October 2013), which makes pricing in Sweden look vulnerable. However, Sweden’s strong economy may anchor rental growth expectations on a higher level than elsewhere in continental Europe.

Stefan Wundrak

Stefan Wundrak

Head of European Research

Stefan's biography