Prime yields fall further in 2014 on strong investor appetite - CBRE

Prime yields across Europe's commercial real estate markets contracted by 30 basis points in 2014 as economic recovery gained traction and fuelled investor demand, according to new research from property advisor CBRE.

Office yields showed the most substantial change in the last quarter of 2014, falling by 11 basis points compared to Q3. The report found that yields moved lower in 24 out of the 58 office locations covered, including Paris, Frankfurt, Milan, Madrid and the City of London.

Yields also moved lower in the retail and industrial sectors, with high street retail yields falling in Paris, Prague and Milan, while the downward trend in industrial properties was led by London, Dublin, Amsterdam and Barcelona.

The picture was less uniform when it came to rental increases, as lingering concerns about the strength of the recovery held back corporate appetite for expansion. Only 23 out of 163 locations surveyed for the CBRE All-Property EMEA Rent Index recorded an improvement.

The index as a whole rose by 1.3% in the quarter, with the prime retail index up by more than 1% and industrial rents staying flat.

The UK market showed strong signs of recovery in terms of rental growth, with office rents rising in seven out of eight locations surveyed while yields fell in Edinburgh, Glasgow, Belfast and London. In the industrial market London was one of only three locations to see any rental uplift.

At the other end of the scale, Moscow and St Petersburg saw an increase in yields as falling oil prices and geopolitical changes continued to constrain the Russian economy.

Richard Holberton, senior director of EMEA research at CBRE, said: ‘Strong investor appetite for real estate pushed total European turnover well over €200 bn in 2014, and, with bond yields in the major markets continuing to trend downwards, we have seen prime property yields move lower again.

‘Leasing markets are not yet showing the same degree of momentum but with economic growth expected to accelerate from this year, we anticipate leasing activity and rental growth rising more widely.’

Click here to download a PDF of CBRE's overview of prime rents and yields in Europe in Q4 2014