Retail rental growth outperforms other sectors.
Falling yields across all property sectors and a moderate increase in rental values provides further evidence of growing momentum in European commercial property markets. The findings from CBRE’s Q3 2013 survey of prime rents and yields backs up the picture of recovering investment markets across the region, which have benefitted from increased capital targeting the sector and improved investor sentiment.
Over Q3 2013, CBRE’s EMEA Prime Yield Indices edged lower in the office, retail and industrial sectors by between three and five basis points. Of the three sectors, the office market showed the most widespread movements, with yields moving lower in nearly a quarter of the locations surveyed including Amsterdam, Dublin and all the major UK regional cities.
Within this group, Belfast and Edinburgh recorded yield reductions of 50 basis points. Dublin office yields moved lower for the fourth consecutive quarter, and are now 100 basis points below their level of a year ago. Significantly Madrid and Lisbon office yields also moved 25 bps lower this quarter. The retail sector also saw some significant changes, most notably, a shift in the prime central London retail yield to below 3%.
Rental improvement was most evident in the prime retail market, where nearly a quarter of the locations surveyed saw an increase, twice as many as declined. The increases encompassed some of the most prestigious retail locations in Europe, with rental increases recorded in Paris, London and Milan, as well as further afield in Istanbul and Dubai.
Rental momentum is less evident in the office market, where almost as many locations fell as rose. Downward pressure continued in parts of southern Europe including Rome and Madrid. Most of the increases occurred in smaller markets, although Munich edged up and prime rents in the West End of London hit £100 per sq ft.
Richard Holberton, Director, EMEA Research, CBRE, said: “The yield movements recorded in the third quarter sustain the trend towards gradual improvement in pricing that has been in train since the second half of last year. On average, prime yields have fallen by around 15 basis points across all sectors over this period, and there are indications of investment appetite spreading to secondary assets in some markets. Rental growth remains patchy, and is most evident in the prime retail sector, but we expect it to become more widespread as European economies continue to recover.”
Office yields across EMEA fell during Q3 2013. The CBRE EMEA Prime Office Yield Index fell by three basis points in the quarter, and is now 16 bps lower than a year ago. Thirteen of the 55 markets surveyed saw downward yield movements this quarter and 42 remained unchanged. The most significant yield reductions were in the UK where both Edinburgh and Belfast dropped by 50bps. A number of other markets saw 25 bps movements including Dublin and Madrid.
Retail yields also moved lower in Q3 2013, with the CBRE EMEA Prime Retail Yield Index down by four basis points, leaving it 15 basis points lower than a year ago. Yields fell in eleven locations, notably London’s West End where the prime yield level is now below 3%, and Lisbon and St Petersburg where yields fell by 50bps. Yields rose in two locations, Birmingham and Edinburgh.
Industrial yields fell in Q3 2013, with the CBRE EMEA Prime Industrial Yield Index down by five basis points in the quarter, and 14 bps over the year. Yields fell in six locations including 50 basis point movements in Manchester, St Petersburg and Dublin, with London also moving lower. The two increases were recorded in Barcelona and The Hague.
Prime office rents across Europe were unchanged during Q3 2013 and the same is true in year-on-year terms. Over the quarter, five of the 55 markets in the survey saw increases in prime rents, 46 remained unchanged, and four fell. The largest increase was in Johannesburg (up 6%). Munich also rose, as did London’s West End where prime rents hit £100 per sq ft. The largest fall was in Prague (-4.8%), the other reductions being in Madrid, Rome and Geneva.
Prime retail rents were up 2.8% in Q3 2013, leaving the CBRE EMEA Prime Retail Rent Index nearly 7% higher than a year ago. Twelve of the 51 markets surveyed registered an increase, 33 remained unchanged, and six fell. Several markets saw double-digit increases most notably Paris, Milan and Rome. London’s West End also saw rents improve (up 4.2%). The six fallers comprised the Dutch markets along with Lille and Athens.
Industrial rents rose marginally in Q3 2013, with the CBRE EMEA Prime Industrial Rent Index up by 0.6% in the quarter, and the same in year-on-year terms. Four of the 47 sample locations rose and the remainder stayed unchanged. The largest increase was in Oslo which saw growth of 9% over the quarter.