CBD yield gap widens to pre-euro levels: Savills

The destabilisation in the European economy has led to the CBD office yield gap between the stronger and weaker markets that resembles pre euro currency levels, Savills has found.

The property adviser's latest European market in minutes report asks, therefore, if the markets are diverging again as a yield gap of up to 550 basis points has emerged.

Savills concludes that markets that converged following the introduction of the euro, which spurred a rise in cross-border investment across Europe, have diverged with a significant pricing difference between core and peripheral markets.

The report notes that annual outward yield shifts have been recently recorded for Athens, Lisbon and Madrid CBD office markets at 50 bps to triple net yields of 8.6%, 7% and 5.9% respectively between Q112 and Q113. Core markets of London’s West End, Munich and Paris were recorded at 3.50%, 4.25% and 3.95% (triple net yields) respectively in the same time frame.

The yield gap between the most stable or expensive core markets and the least stable periphery markets therefore represents 225 bps. This compares to a peak of the market yield gaps of just 14 bps in 2007 and 110 bps in 2001, shortly after the introduction of the euro currency.

Eri Mitsostergiou of Savills European research: 'The divergence today reflects the underlying difference of the economic fundamentals which existed before the introduction of the euro. These differences were harmonised for some years but have returned following this period of economic crisis.'

However, the report goes on to draw on Real Capital Analytics data which indicates the share of domestic versus cross-border investment is back on par this year. Savills said this suggests some confidence is returning, particularly in the strongest markets of London, Paris and German cities, which monopolise investor activity.