Prime property yields will continue to fall - CBRE

The ‘polarised’ recovery of prime and secondary commercial property markets, which has seen investment interest highly concentrated at the prime end of the market, is expected to continue for the foreseeable future, property adviser CB Richard Ellis said today at Expo Real in Munich.

On the capital markets side, investment activity is being driven by investors who are mostly institutional in style and lenders who are only interested in lending against prime property. On the occupier side, demand is focussed on prime property, but the lack of development activity means that this is also the part of the market where there is the potential for supply shortages, said Michael Haddock, Director of EMEA Capital Markets Research at CBRE.

CBRE's analysis of the UK market clearly shows that while prime real estate in the UK has seen capital value gains of more than 25% since June 2009, secondary property has generally seen none. And now growth is slowing in markets like London and Paris as investors are taking stock, CBRE said.

This lack of growth in secondary properties, across Europe, means that cunter-cyclical investors will therefore be looking to secondary property to take advantage of the much higher yields currently available. Investors are likely to target countries where economic recovery is strongest, such as Germany and the Nordics.

However, following the recent fall in bond yields, the gap between property and bond yields is back at record levels. ‘As a result, we should see further growth in interest for the most prime property, as well as falling yields in some of Europe’s less liquid markets as they catch up with the movements that we have already seen in London and Paris,’ said Jonathan Hull, Head of EMEA Capital Markets at CBRE.