Prime office yields dip below 2007 trough - CBRE

Prime office yields in Europe have dipped below levels recorded in 2007, according to CBRE's EMEA prime rents and yields survey for the third quarter of 2015.

However, EMEA office yields have proved to be fairly resilient in the face of the downward pressure exerted on all real estate pricing by growing investor demand and very low bond yields, CBRE said. Yields for prime offices stood at just under 5% for the three months to end-September, having edged lower by 18 basis points in Q3 and 47 basis points year-on-year.

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Retail yields also moved lower, though only marginally so in the high-street sector. CBRE's survey put prime shopping centre yields at 5.1%, down 11.6 basis points on the quarter and 40.5 basis points year-on-year. High-street yields were at 4.3%, down 6.8 basis points on the quarter and 40.5 basis points lower year-on-year.

All property
CBRE said that yield contraction was evident across all property sectors. Across the total of 162 sector/city combinations surveyed throughout the EMEA region, 71 saw prime yields moving lower and none saw any increase over the quarter.

Prime yields fell across all main sectors, and are now generally 40-50 basis points lower than they were a year ago.

The most marked shift was recorded in the industrial and logistics sector where prime yields fell by 20 basis points in the quarter, and nearly 60 basis points on the year, reflecting very strong investment appetite for the sector with nearly €12 bn of assets traded in the past two quarters.

Many of the major strategic European logistics hubs saw yields moving lower over the quarter, including Paris, Frankfurt, Rotterdam, Milan and Brussels.

Retail rents
The retail sector led the way in terms of rents, with prime high street rents up 6.7% compared with a year ago. Prime London West End retail rents rose by over 7% quarter-on-quarter.

Further notable rental increases were recorded in the German and Spanish office markets, and UK regional cities across all sectors. Across the survey as a whole, rental increases were rather sparse, with 30 of the 162 sector/city combinations recording higher rents and ten declining, several of them in the CEE region where there is more availability which is inhibiting rental growth.

'Falls in prime yields have been a feature of the market for three years now, and this quarter’s data gives every indication of the trend continuing, or even accelerating,' said Richard Holberton, senior director of EMEA research at CBRE.

'This is linked with strong investment demand for real estate and a supportive capital markets environment characterised by low bond yields, low real interest rates and continued quantitative easing. On the rental side, while the pattern is certainly not clear-cut, there are indications that some of the early-cycle growth markets such as London and Dublin are heading into a period of slower growth, while some of the later-recovery markets notably Spain are beginning to pick up speed.'