Rising government bond yields in Italy could bring about a repricing of the country鈥檚 commercial real estate market, according to an economic research consultancy.
Capital Economics has warned that persistently high bond yields could lead to a sharper repricing than it had previously forecast.
Yields on 10-year government bonds rose above 3% at the end of May for the first time since 2014, 鈥渁gainst a backdrop of increased political uncertainty鈥�, the company said.
But while Capital Economics has previously suggested that short-term spikes in bond yields tend to have a limited impact on property yields, it is looking more likely that Italian 10-year bond yields will remain high.
鈥淭here are reasons to think that Italian risk-free rates are now likely to stay elevated rather than fall back to the 2% mark they traded at, at the start of the year,鈥� Capital Economics said.
鈥淲hile fears over a possible exit from the euro have receded, the government鈥檚 more confrontational approach to the EU is likely to continue. And given the country鈥檚 debt pile and likely fiscal loosening, a renewed bout of market uncertainty could easily materialise in October when the government submits its 2019 budget to the EU.鈥�
The report by Hamish Smith, senior property economist, concludes that 鈥漬ot only are prime property yields likely to have found a floor, but there is a risk that property yields rise more sharply than we are forecasting鈥�.
In May, Capital Economics predicted interest rates across the eurozone to rise gradually from late-2019 and consequently said it did not expect 鈥渁 sudden jump in property yields and large yield-driven falls in capital values鈥�.
But today it concluded that the 鈥渞ecent spike in Italian government bond yields is likely to be sustained for the foreseeable future, increasing the risk of a sharper repricing for Italian commercial property than we are forecasting鈥�.
Real Estate published a report this week showing that 鈧�1.7bn of Italian commercial real estate was traded in the second quarter, and 鈧�3.2bn had changed hands during the first six months of the year.
