Retail Sector Leads Yield Improvements Across European Commercial Property Market
Yields Improve in Over a Third of European Retail Markets Sampled By CBRE -
- Ireland Boasts Strong Numbers across All Sectors -
London, 16 July 2014 – European commercial real estate markets saw continued growth in Q2 2014 with further yield compression supporting value growth across all property sectors and a number of markets also reporting modest rental increases, according to the EMEA Prime Rents and Yields survey from global property advisor CBRE.
CBRE’s EMEA Prime Yield Indices continued to edge down across all sectors, with the all-property yield down by seven basis points (bps) in the quarter. The most pronounced changes occurred in the high street retail and shopping centre sectors, which fell by 11 and 16 bps respectively – the result of yields moving lower in over a third of retail markets sampled including the major cities in France, Germany and Italy. Prime yields across each of the three main commercial sectors are now at least 25 bps lower than they were a year ago, reflecting growing investor confidence.
John Welham, Executive Director, EMEA Capital Markets, CBRE commented:
“Investor demand for retail assets has improved significantly in the first half of 2014 with many new buyers entering the market, particularly from the U.S. In many markets prime shopping centre yields are approaching the level achieved at the top of the last cycle. Strong competition for assets means that sales processes are once again going through two or even three rounds of bidding, with prices rising through the process. At the same time, growing appetite for risk is generating good demand for core-plus and value-add properties. Investors believe that now is a good time to buy centres that have had a lack of investment during the last few years and to activate asset management plans that can release the value-add potential in the asset.”
In the office and industrial sectors, yields improved by between five and seven bps. There was little clear geographic pattern to these shifts, but office yields dropped in Paris, Milan Prague and industrials in Rotterdam, Warsaw and Stockholm. Dublin was a standout market with yields improving in the office and retail sectors, and rents rising in all three sectors in Q2 2014. The strength of the bounce back in the Dublin market is reflected in the fact that office rents have risen by 33% over the past year and 46% from the trough in response to supply shortages in the Central Business District.
More broadly, the rental picture is one of stability rather than general upward movement. Based on the CBRE EMEA Prime Rent Indices, retail and industrial rents rose by just under 0.5% in Q2 2014, and stayed flat in the office sector. Significant changes include the rise in prime London West End office rents to £107.50 per sq ft, and higher retail rents in Glasgow, Manchester, Oslo and Istanbul.
Commenting on the Q2 2014 rental statistics, Richard Holberton, Senior Director, EMEA Research at CBRE, added:
“Recent economic indicators have been somewhat mixed across the eurozone and, while we continue to expect stronger numbers to come through in the second half, this is acting as something of a constraint on occupiers’ expansion appetite at least in the short term. On the supply-side, low vacancy rates in some markets and the more general weakness in development activity will serve to limit occupiers’ choice and should underpin more widespread rental growth from the second half of 2014.”
Office yields across EMEA decreased in Q2 2014. The CBRE EMEA Prime Office Yield Index fell by five bps in the quarter, and is now 25 bps lower than a year ago. Twelve of the 58 markets surveyed saw downward yield movements this quarter, 42 remained unchanged and four rose. Prague, Milan and Dublin each saw yields drop by 25 bps while Tel Aviv fell by 50 bps. The largest rise was in Kyiv, up 100 bps to 14.5%, while Rotterdam, The Hague and Utrecht all saw smaller increases.
Retail yields also moved lower in Q2 2014, with the CBRE EMEA Prime High Street Retail Yield Index down by 11 bps, and the corresponding Prime Shopping Centre Yield Index down by 16 bps. Both are 29 bps lower than a year ago. Yields fell in 19 locations, rose in one and remained static in the remaining 34. Dublin and Tel Aviv saw the largest downward shifts (50bps). Kyiv was the only increase, up by 100bps.
Industrial yields fell in Q2 2014, with the CBRE EMEA Prime Industrial Yield Index down by six bps in the quarter, and 37 bps over the year. Yields fell in 12 locations, rose in three and remained static in the other 36. The largest downward moves occurred in Manchester and Copenhagen, both down 50bps. The largest increase was recorded in Kyiv, up 100 bps to 16.5%.
Prime office rents across Europe remained static in Q2 2014 and are up by just under 1% year-on-year. Among the five markets where rents moved higher, the largest increase was in Dublin (+14%). Rome saw the largest fall (-5%) of the three markets in which rents declined.
Prime retail rents rose slightly in Q2 2014, with the CBRE EMEA Prime High Street Retail and Shopping Centre Rent Indices both up by 0.3%. Seven of the 54 markets surveyed registered an increase, 46 remained unchanged, and one fell. The largest increase occurred in Dublin (up 12.5%) and the only decline was recorded in Tel Aviv (down 5%).
Prime industrial rents rose marginally in Q2 2014, with the CBRE EMEA Prime Industrial Rent Index up by 0.4% in the quarter, and 1.4% in year-on-year terms. Five of the 51 sample locations rose, three fell and the remaining 43 stayed unchanged. The largest increase was in Istanbul (up 14.8%), and the biggest decrease occurred in Rome (down 5.5%).
About CBRE Group, Inc.
CBRE Group, Inc. ((NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2013 revenue). The Company has approximately 44,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through approximately 350 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
+44 20 7 269 9350
+44 20 7182 3187