JLL Office Property Clock Q3 2022
Strong Q3 European leasing activity recorded despite macroeconomic headwinds
- Alex Colpaert
- Atalanti Angelopoulou
- Tom Carroll
- Bo Glowacz
Conditions in the European economy took a turn for the worse in the third quarter as inflation continued to rise, interest rates and funding costs headed sharply higher, and the energy crisis continued. The war in Ukraine continued and with it, European sanctions on Russia. European economies have, since earlier in the year, been working to increase their gas storage and cut back on energy consumption, issuing a patchwork of guidance and policy supports to households and businesses across the region. Gas and coal prices rose further during the quarter, driving up electricity prices. Energy costs in Europe increased much more than in other parts of the world. Positively, disruption to supply chains began to ease and the costs of internal shipping came down sharply. International commodity prices also dropped backed, with many falling below their pre-invasion level, though they remain very volatile. This will help reduce some of the upward pressure on inflation, though for many economies, including those in Europe, currency depreciation against the US dollar worked to affect import prices in the opposite direction, raising the local currency price of commodities. Monetary policymakers continued their tightening cycles, raising interest rates further into contractionary territory in CEE markets. The ECB and Bank of England both made further upward shifts in policy rates too, though they remain considerably behind the curve compared to their smaller peers. Government bond yields and other funding costs moved sharply higher in anticipation of more interest rate hikes, and international market turbulence, initiated by a loss of confidence in the new UK government’s fiscal plans, added upward pressure to yields. The upshot was a deterioration in forecasts for GDP growth this year and next. Many of the major European economies are already contracting and will see continued weakness through the back end of next year. Not all economies are equally afflicted, however, and there remain those better insulated from the energy crisis, such as Portugal or Norway (an energy exporter), those that are less affected by inflation, such as France and Switzerland, and those better to able to respond to slowing economic performance with fiscal stimulus (such as Ireland and the Netherlands).