Yields fall across European property markets

Falling yields across all property sectors and a further slight increase in rental values provides more evidence of growing momentum in European commercial real estate markets, according to the latest research from CBRE.

The findings from CBRE’s Q4 2013 survey of prime rents and yields backs up the picture of strengthening investment markets across the region, which have benefitted from strong capital flows into the sector and growing indications of economic recovery.

CBRE’s EMEA Prime Yield Indices tightened over Q4 2013 in the office and retail sectors by between seven and 10 basis points, while yields in the industrial sector fell more than 20 basis points reflecting widespread improvement in the core western European markets and a significant rise in investment levels in the sector. Industrial yields tightened in nearly half of the markets covered including the UK, France and Germany, but also Spain and Italy.

In the office market, yields fell in the key City and West End of London markets as well some of the UK regional markets and all the main German markets. Dublin, which is undergoing a rapid recovery, saw yields edge down 25 basis points in the quarter, and they are now fully 100 basis points lower than at the end of 2012. Retail yield movements were more widespread, with small changes recorded across the main German markets, and larger falls in Spain, Italy and parts of the UK outside London.

While the economic backdrop for occupational markets is increasingly positive, rental movements remain modest so far. Growth is most evident in the retail markets, with shopping centre rents up by almost 3% on the quarter and high street retail rents up by nearly 1%. Retail rent increases were mostly concentrated in the stronger northern European markets, including Germany, Scandinavia and the UK. Rental increases were less widespread in the office and industrial sectors: notable increases include the office markets of the City of London, Munich and Dublin. Prime Dublin office rents are now up by over 25% year-on-year.

Richard Holberton, director, EMEA Research, CBRE, commented: 'The yield movements recorded in the fourth quarter represent an acceleration of the trends we have seen in recent quarters, and reflect very strong levels of investment interest in the European property market last year, particularly the second half. The movement in industrial and logistics yields reflects the very sharp rise in investment turnover in the sector last year, resulting in pricing shifts in most of the major western European markets. Overall, rental growth remains patchy, and is most evident in the prime retail sector, but with economic indicators improving, we expect it to become more widespread.'