European yields decline further in Q3 2013

The yield for prime central London retail dipped below 3% in the third quarter, according to research from CBRE.

CBRE’s EMEA Prime Yield Indices edged lower in the office, retail and industrial sectors by between three and five basis points. The office market showed the most widespread movements in the three-month period, with yields moving lower in nearly a quarter of the locations surveyed including Amsterdam, Dublin and all the major UK regional cities.

Within this group, Belfast and Edinburgh recorded yield reductions of 50 basis points. Dublin office yields moved lower for the fourth consecutive quarter, and are now 100 basis points below their level of a year ago. Significantly Madrid and Lisbon office yields also moved 25 bps lower this quarter.

The prime retail sector also booked significant changes on the rental front where nearly a quarter of the locations surveyed saw an increase, twice as many as declined. The increases encompassed some of the most prestigious retail locations in Europe, with rental increases recorded in Paris, London and Milan, as well as further afield in Istanbul and Dubai.

Rental momentum is less evident in the office market, where almost as many locations fell as rose. Downward pressure continued in parts of southern Europe including Rome and Madrid. Most of the increases occurred in smaller markets, although Munich edged up and prime rents in the West End of London hit £100 (€118) per sq ft.

According to Richard Holberton, director EMEA Research, CBRE, the yield movements recorded in the third quarter sustain the trend towards gradual improvement in pricing that has been in train since the second half of last year. 'On average, prime yields have fallen by around 15 basis points across all sectors over this period, and there are indications of investment appetite spreading to secondary assets in some markets. Rental growth remains patchy, and is most evident in the prime retail sector, but we expect it to become more widespread as European economies continue to recover.'