Economic OverviewThe European Union (EU) saw GDP growth of 1.8% in 20161. Growth in Germany, the largest economy on the continent, was underpinned by mildly expansionary fiscal spending and private consumption demand, which stayed firm thanks to a robust labour market and low interest rates. Unemployment remained at historic lows, while subdued oil prices helped keep inflation in check. The International Monetary Fund expects the world economy to pick up pace in 2017. Its global growth estimate of 3.4% is underpinned by growth of 1.9% in advanced economies.2 For the EU, political developments could adversely affect both consumption and investment. Even so, the European Commission expects moderate growth of 1.6% in 2017, supported by labour market gains and rising private consumption.1
Real Estate Sector3In 2016, a limited pipeline of developments and solid leasing activity in Europe continued to push vacancy rates down and rents up, especially for prime properties. In the office segment, leasing volumes rose by around 4%, while the vacancy rate dipped below 10%, a level not seen since 2009. Investment appetite for core property in the most liquid markets stayed strong, particularly in top German cities and in France, resulting in compressed yields. For 2017, economic growth is expected to lend support to the real estate sector, despite the possibility of further political surprises, higher inflation and a gradual turnaround in long-term interest rates. Vacancy rates are expected to fall further, especially for better properties in good locations. Meanwhile, rents are expected to continue rising in all property segments across the EU in 2017.