EUROPE - The weighted average European price office yield moved out 20 basis points from 5.8% at the end of 2008 to 6%, a much smaller increase than the 50bps movement between Q3 and Q4 2008, according to Jones Lang LaSalle's (JLL) Q1 2009 European Office Yields Report.

Prime yields in core European office markets, including those in London and Paris, are expected to reach a ceiling by the end of the year, concluded JLL.

Tony Horrell, head of European capital markets at JLL, said this was based on "improving buyer sentiment for the best quality product, where investors believe yields have reached a level, where they feel confident to transact".

He added: "It also represents investors seeking to secure the very best assets before the bottom of the market, on the assumption that the best assets are typically traded before markets begin to pick up again."

JLL said the most evidence can be seen in improving sentiment in central London where there has been increased transaction activity and a higher level of bidding.

Prime yields in the City of London remained stable during the quarter, having moved 125bps year on year (Q1 2008 to Q1 2009), while London's West End moved out 25bps during the quarter and 100bps between Q1 2008 to Q1 2009.

German and Italian markets have continued to show the smallest outward yield movements since the start of the market decline, moving 50-60bps from Q1 2008 to Q1 2009.

The only market where yields moved inwards was Edinburgh, which saw a 25bps movement, although this follows a dramatic 100bps yield decompression in Q4 2008.

Although transaction levels are marginally up in London, activity across Europe remains low. International investors are today firmly focused on core liquid markets, including London and Paris, and on lot size in the range of €30-70m, JLL reported.

"Despite improving sentiment in some markets, capital is chasing a narrowing definition of prime which is not only defined as the best quality building in the best location, but is also exclusive to properties with long lease terms and strong covenants," said Horrell.