EUROPE - Cushman & Wakefield says European commercial real estate markets are beginning to show signs of stabilising, just as International Property Databank (IPD) has announced the return of yield compression in UK West End office markets.
 
In its latest update, Cushman & Wakefield said Euro office investment volumes rose 2.5% between the first and the second quarters of 2009, driven by cross-border investor activity in core Western markets.
 
That said, the €11.97bn of transactions for the quarter represented just 41% of the average for 2008 and only 19% of the average for the market's peak year in 2007.
 
The increase in investment activity was accompanied by a stabilisation of yields, as the all-sector average for Europe rose just seven basis points in Q2, down significantly from the 28bps in the previous quarter.
 
"The numbers on the market make for better reading than they did earlier this year", said Michael Rhydderch, head of the European cross-border capital market group at Cushman & Wakefield.
 
"Although there remains a fundamental mismatch between what many buyers want and what is available for them to buy, the allure of historically-high income yields is tempting increasing numbers back into the market".
 
Average prime yields across Europe now stand at 7.52%, with Western yields (excluding the UK) averaging 6.65% - versus 6.97% in the UK, 8.63% in Central Europe and 12.86% in Eastern markets.
 
Meanwhile, IPD has reported yields in London West End offices fell for the first time in more than two years.
 
Yield impact, which measures the influence of yield movements on capital values, was 0.9% for the sector during Q2 - the first market segment to show positive quarterly impact since Q1 2007.
 
Only sustained downward pressure on rental value levels (at -7.1%) prevented capital values from rising over the quarter.
 
The erosion of estimated rental value was steeper than in any other segment last quarter, forcing West End office capital values down by a further 4.4%, despite the slight hardening of yields.
 
Despite this yield improvement since the turn of the year, West End offices have seen the largest segment disposals over the last two years, with total sales worth £2.8bn (€3.29bn) against £392m in purchases - the vast bulk of which was in the first quarter of this year.

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