The German office property market is facing yield compression as the yield gap between prime and secondary office segments widens, property adviser Savills said on Monday. The average yield gap between prime and secondary European office property now stands at 100 basis points, comparable to levels recorded 10 years ago, Savills said.
The German office property market is facing yield compression as the yield gap between prime and secondary office segments widens, property adviser Savills said on Monday. The average yield gap between prime and secondary European office property now stands at 100 basis points, comparable to levels recorded 10 years ago, Savills said.
A Savills survey found the yield gap between prime and secondary office stock was at 60 basis points during the peak of the investment market activity in 2007 and 2008. However, over the past year, average prime yields have compressed by 38 basis points to below 5.9%. Meanwhile, secondary yields have compressed by 31 basis points and now stand at an average of 7%, Savills said.
'This yield divergence reflects investor preference for prime assets. We have seen the strongest movements in London and Paris, but as some investors get priced out of these markets, we forecast the next wave of significant yield compression will occur in German office stock which is seeing increased investor focus,’ said Giles Wilcox, head of cross-border investment at Savills.
The strongest inward yield shifts for prime CBD assets ranged between 25 and 175 basis points with the highest shifts in London, Manchester and Paris. In terms of secondary yields French and British markets saw a 100-125 basis point downward shift. Meanwhile, in some Southern European markets such as Athens, Milan Bucharest and Budapest yields continue to soften.
