According to Aviva Investors’ global research manager, Chris Urwin, while the firm expects annual returns to peak this year, it does foresee prices rising this year and has thus revised its forecasts upward.
However, not all areas are considered equal within the region. Based on expectations that European growth is likely to remain lacklustre for a prolonged period and inflation will stay low, Urwin says the group prefers high quality assets in core markets, particularly German and Swedish retail, Belgian and German industrial and Finnish office space, because they offer “significant income security”.
Urwin added: “The impact of weaker inflation on rents marginally dampens our forecast for rental growth in the short term. We expect income growth of 2.7% a year between 2015 and 2019. Rents in the retail sector however should hold up fairly well as lower oil prices are set to boost consumer spending.”
The weaker euro is also likely to boost tourism revenues in key tourist cities, the firm said.
Less attractive, however are certain parts of the periphery.
“The Irish market still offers some value on a risk-adjusted basis, but far less than a year ago following a rapid rise in prices in 2014. With rents likely to recover only gradually in Spain and Italy, these markets look less attractive,” Urwin said.
