Europe's commercial real estate markets continued their positive march in the first quarter of 2014 with further yield compression across all property sectors and a number of markets reporting rental growth, according to the latest research from global property advisor CBRE.
Europe's commercial real estate markets continued their positive march in the first quarter of 2014 with further yield compression across all property sectors and a number of markets reporting rental growth, according to the latest research from global property advisor CBRE.
Europe has been seeing a strong rebound in investment activity in the past six months, reflecting a growing investor appetite for commercial real estate in a strengthening economic environment, according to findings of CBRE’s Q1 2014 survey of EMEA Prime Rents and Yields report.
CBRE’s EMEA Prime Yield Indices continued to edge down, by between five and eight basis points. The largest yield decrease was recorded in the office sector, which fell by eight basis points leaving the index 24 basis points lower than a year ago. There was yield compression in some of the markets most affected by the eurozone crisis, including Dublin and Lisbon where yields fell by 50 basis points, while yields in Madrid, Barcelona and Athens fell by 25 basis points.
The increase in investor appetite for these markets is a further indication of the confidence in a eurozone recovery. It was a similar story in the retail sector, with high street yields in Athens, Barcelona, Dublin and Lisbon all falling by 25 basis points.
'Demand for European commercial property continues apace in 2014, reflected by the tightening of prime yields across all sectors during the first quarter,' said Richard Holberton, senior director of EMEA Research at CBRE. 'The drop in yields in Q1 2014 has been particularly pronounced in markets closely linked with the eurozone crisis including, Spain, Ireland, Portugal and Greece. While no one is yet heralding the arrival of widespread economic recovery in the region, confidence is growing, with opportunistic overseas investors increasingly prepared to look beyond safe haven markets and consider opportunities in places that were out of favour as recently as 12 months ago.'
Although the economic backdrop for occupational markets is looking increasingly positive, returning confidence has not yet translated into significant prime rental growth. High street retail, office and industrial indices grew by just 0.3% in Q1 2014, while shopping centre rents declined by 0.1% in the same period.
Prime rents in many of the office markets have stabilised at the bottom of the cycle, and are expected to return to growth in the second half of the year. London City and West End continued their upward momentum, rising by 1.7% and 5.0% respectively. Prime rents in the majority of industrial and retail markets were stable, with growth generally concentrated in the German and UK regional markets. This was counteracted by rental decline in some Central and Eastern Europe (CEE) markets.