European commercial property returns expected to slow

Returns from European commercial property assets may fall behind those of equities after a period of strong gains, particularly if interest rates rise further, according to a report by Goldman Sachs.

The report said: "The outlook for property rental growth remains subdued, and higher property could be the catalyst for underperformance."

Goldman Sachs view on the property sector is "cautious".

Based on current earnings, the net operating profit after tax (NOPAT) yield of listed real estate is 5%, compared with 6.3% for equities. Historically, such a gap is normally followed by a slowing property market the report said.

Canadian building permits fall

According to Statistics Canada (Statcan), the value of building permits eased 5.3% in September, after hitting a record high a month earlier.

Statcan revealed that although the housing sector rose 3.2%, the fifth gain in the last six months, demand for single-family dwellings is falling.

"The high price tag associated with the purchase of a new single-family dwelling has induced a shift in demand," the report said. "The demand for new single-family dwellings has definitely slowed as the number of new units approved has fallen for a third consecutive quarter."