Inflation and bond yield shocks in Europe affect RE returns the most

Our latest modelling shows that European city-level real estate is most exposed to local government bond yields and consumer inflation fluctuations.

Our modelling shows that:

• On average, a 1% fall in national employment leads to a 1% drop in property prices.
• Inflation has almost double the impact: equivalent rises in inflation tends to reduce prices by 1.9%.
• In the case of bond market fluctuations, a 1ppt rise in national bond yields tends to eat away capital returns by 5.4ppts.
• But these macro shocks do not affect all local markets equally.
• Across sectors, hotels emerge as the most exposed to inflation and interest-rate swings.

By running country-specific scenarios, we capture each economy’s unique structure—revealing why price reactions vary widely across cities and property types. We simulate how returns shift under employment, inflation, and bond-market shocks at a time when Europe faces political uncertainty, shifting migration trends, fiscal pressures, and global trade realignments.

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