- Yields Improve in Over a Third of European Retail Markets Sampled By CBRE -
- Ireland Boasts Strong Numbers Across All Sectors -
European commercial real estate markets saw continued growth in Q2 2014 with further yield compression supporting value growth across all property sectors and a number of markets also reporting modest rental increases, according to the EMEA Prime Rents and Yields survey from global property advisor CBRE.
CBRE’s EMEA Prime Yield Indices continued to edge down across all sectors, with the all-property yield down by seven basis points (bps) in the quarter. The most pronounced changes occurred in the high street retail and shopping centre sectors, which fell by 11 and 16 bps respectively – the result of yields moving lower in over a third of retail markets sampled including the major cities in France, Germany and Italy. Prime yields across each of the three main commercial sectors are now at least 25 bps lower than they were a year ago, reflecting growing investor confidence.
John Welham, Executive Director, EMEA Capital Markets, CBRE commented:
“Investor demand for retail assets has improved significantly in the first half of 2014 with many new buyers entering the market, particularly from the U.S. In many markets prime shopping centre yields are approaching the level achieved at the top of the last cycle. Strong competition for assets means that sales processes are once again going through two or even three rounds of bidding, with prices rising through the process. At the same time, growing appetite for risk is generating good demand for core-plus and value-add properties. Investors believe that now is a good time to buy centres that have had a lack of investment during the last few years and to activate asset management plans that can release the value-add potential in the asset.”
In the office and industrial sectors, yields improved by between five and seven bps. There was little clear geographic pattern to these shifts, but office yields dropped in Paris, Milan Prague and industrials in Rotterdam, Warsaw and Stockholm. Dublin was a standout market with yields improving in the office and retail sectors, and rents rising in all three sectors in Q2 2014. The strength of the bounceback in the Dublin market is reflected in the fact that office rents have risen by 33% over the past year.
More broadly, the rental picture is one of stability rather than general upward movement. Based on the CBRE EMEA Prime Rent Indices, retail and industrial rents rose by just under 0.5% in Q2 2014, and stayed flat in the office sector. Significant changes include the rise in prime London West End office rents to £107.50 per sq ft, and higher retail rents in Glasgow, Manchester, Oslo and Istanbul.
Commenting on the Q2 2014 rental statistics, Richard Holberton, Senior Director, EMEA Research at CBRE, added:
“Recent economic indicators have been somewhat mixed across the eurozone and, while we continue to expect stronger numbers to come through in the second half, this is acting as something of a constraint on occupiers’ expansion appetite at least in the short term. On the supply-side, low vacancy rates in some markets and the more general weakness in development activity will serve to limit occupiers’ choice and should underpin more widespread rental growth from the second half of 2014.”
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