FURTHER YIELD CONTRACTION ACROSS ALL SECTORS OF
EUROPEAN COMMERCIAL PROPERTY MARKET
- Rental Improvement Remains Patchy; Strongest in Office Sector -
- Strong Signs of Growth in UK Market -
London, 2 February 2015 – European commercial real estate markets saw further yield improvements in Q4 2014 across all property sectors reflecting growing investor demand and very low bond yields, according to the EMEA Prime Rents and Yields survey from global property advisor CBRE.
Prime yields fell across all main sectors, to stand at least 30 basis points lower than they were at the end of the previous year. Within this general picture, office yields saw the most substantial change in the quarter, with yields down by 11 basis points compared with Q3. This was driven by yields moving lower in 24 of the 58 office locations surveyed, including the major markets of Paris, Frankfurt, Milan, Madrid and the City of London. The only markets that saw yields moving higher in Q4 were Moscow and St Petersburg where investor sentiment has been dented by geopolitical challenges and falling oil prices.
Yields also moved lower in the retail and industrial sectors. Notable changes in the quarter included high street retail yields moving lower in Paris, Prague and Milan, while industrial yields fell in London, Dublin, Amsterdam and Barcelona.
The incidence of rental increase remains uneven, with lingering concerns over the strength of economic recovery in some countries still affecting corporate appetite for expansion. The CBRE All-Property EMEA Rent Index rose by 1.3% in the quarter and only 23 of the 163 locations surveyed saw any improvement. The office sector accounted for fifteen of these, including the major London markets of the City and West End, as well as Frankfurt, Madrid and Milan. This pushed the office rent index up by 1.6% in the quarter (2.7% YonY). Fewer retail locations saw upward rental movement, but significant increases in Dublin, Munich and Dubai were sufficient to push the EMEA prime retail rent index up by over 1% in the quarter. Industrial rents were flat over the quarter in aggregate terms although London rents did see a 2% increase.
A notable feature of this quarter’s data was the contribution of UK markets to many of the main EMEA-level changes. In the office sector, rents rose in seven of the eight locations surveyed while yields fell in Edinburgh, Glasgow and Belfast as well as the City of London. In the industrial market, London was one of only three locations to see any rental uplift and also recorded further decline in yields, as did Manchester.
Commenting, Richard Holberton, Senior Director, EMEA Research at CBRE, added:
“Strong investor appetite for real estate pushed total European turnover well over €200bn in 2014, and, with bond yields in the major markets continuing to trend downwards, we have seen prime property yields move lower again. Leasing markets are not yet showing the same degree of momentum but with economic growth expected to accelerate from this year, we anticipate leasing activity and rental growth rising more widely.”
Office yields across EMEA decreased in Q4 2014. The CBRE EMEA Prime Office Yield Index fell by five bps in the quarter, and is now 30 bps lower than a year ago. Twenty four of the 58 markets surveyed saw downward yield movements this quarter, 32 remained unchanged and two rose. Oslo and Lisbon saw yields move 50bps lower. A number of markets saw yields drop by 25 bps including the City of London, Madrid and Edinburgh. The two increases occurred in Moscow (112bps) and St Petersburg (113bps).
Retail yields also moved lower in Q4 2014, with the CBRE EMEA Prime High Street Retail Yield Index down by eight bps, and the corresponding Prime Shopping Centre Yield Index down by two bps, leaving them respectively 34 bps and 36 bps lower than a year ago. Yields fell in 20 locations, rose in two and remained static in the remaining 32. The largest downward shifts (50bps) were observed in a number of markets, including Prague and Oslo. Moscow and St Petersburg recorded the only upward shifts of 87bps and 88bps respectively.
Industrial yields fell in Q4 2014, with the CBRE EMEA Prime Industrial Yield Index down by five bps in the quarter, and 32 bps over the year. Yields fell in 15 locations, rose in two and remained static in the other 34. The largest downward movement occurred in Lisbon (75bps) while Dublin and Bucharest were 50bps lower and London 30 bps. Helsinki, Budapest, Barcelona and Manchester all saw yields drop by 25bps. Again the largest increase was recorded in Moscow, up 150 bps to a prime yield of 12.75%.
Prime office rents across Europe rose in Q4 2014, up by 1.6% in the quarter and 2.7% year-on-year. Among the 15 markets where rents moved higher, the largest increases were recorded in Marseille and Belfast where rents grew by 11% and 7% respectively. A number of larger markets including London, Frankfurt, Madrid and Milan saw increases of 2-4%. St Petersburg saw the largest fall (-34%), with Moscow office rents declining by 25%.
Prime retail rents rose in Q4 2014, with the CBRE EMEA Prime High Street Retail index up 1.1% and the Shopping Centre Rent index only up by 0.1%. Five of the 54 markets surveyed registered an increase, 46 remained unchanged, and three fell. Rents in Dublin (11%) and Riga (7%) grew the most out the various retail markets. St Petersburg saw the largest drop in rents (-36%).
Prime industrial rents were largely unchanged in Q4 2014, with the CBRE EMEA Prime Industrial Rent Index up by just 0.1% in the quarter, and 0.8%% in year-on-year terms. Three of the 51 sample locations rose, four fell and the remaining 44 stayed unchanged. The largest increases were seen in Dubai (6%) and Dusseldorf (4%). In comparison to this, the largest drop in rentals were in St Petersburg (-14%) and Kyiv (-12%).