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European office rent yields
Europe fell slightly during Q3 2011
while sovereign debt problems and divergent national economic performance are
seen as causing
in European commercial real investment markets in Europe, CBRE,
the US property consultants, said Wednesday at its EuropeanInvestment
Market briefing at the annual Expo Real conference in Munich, Germany.
polarisation of prime and secondary commercial property markets, which has
characterised the European real estate landscape over the last two years with
investment interest highly concentrated at the prime end, is expected to
continue for the foreseeable future and
possibly intensify. Very low returns on cash and top-rated government bonds make
prime property yields relatively attractive, but with major economic
uncertainties prevailing, property investors will focus on larger, more liquid
markets and those perceived to have stronger economic fundamentals.
CBRE anticipates that sustained competition for core
assets will support robust pricing for prime quality property.
Speaking at Expo Real, Dr Peter Damesick, EMEA chief economist for
CBRE, said: “Current drivers among both equity-based and debt-financed investors are leading
to a concentration on prime quality assets in core markets. This is becoming a
crowded space where investors are finding it difficult to secure sufficient
opportunities of the quality required. Meanwhile, in much of the rest of the
market liquidity is limited and pricing much more uncertain. Heightened
uncertainties created by the sovereign debt crisis and downgrades in growth
expectations are reinforcing these trends.”
Hunt, Head of Research at CBRE in Dublin said: “Total transaction activity in European real estate markets has slowed in 2011.
This is particularly the case in southern European markets where sovereign debt
problems are greatest. There has been a shift in capital flows in favour of
Germany, Sweden and parts of CEE where investors perceive stronger economic
fundamentals. At the same time, the polarisation between prime and lesser
quality secondary real estate assets across Europe, is continuing to increase.
line with these European trends, investment activity in Ireland also remains
firmly on hold with only 3 deals, totaling less than €180 million, completed in
the Irish property market in the first nine months of 2011. Unlike the rest of
Europe, where a decline in investment volumes is attributed to sovereign debt
problems and economic concerns, the decline in activity in the Irish market is
largely attributable to a lack of bank funding and ongoing uncertainty
surrounding proposed Government rent reforms”.
Outside the prime category, CBRE expects widening
disparities in property pricing and performance depending on asset quality and
local market conditions. Good secondary property in stronger markets with
potential for asset management to add value will attract investor interest.
Poorer quality secondary or tertiary property has a more challenging outlook
with an ongoing lack of debt finance for investment. Pricing is untested in
substantial parts of the secondary market in Europe and it is likely a
significant proportion of low quality assets will only find purchasers at prices
offering potential for high risk equity-style returns.
sector level, retail property has taken a larger share of the European
investment market in 2011, with the volume of purchases in H1 2011 up by 29% on
a year earlier. Retail property investment was significantly stronger compared
to 2010 activity in Germany, the Nordic countries and CEE.
CBRE’s analysis shows that real estate investment
volumes in Italy and Spain were down by over 40% in the first half (H1) of 2011
compared to H2 2010. In Portugal, transactions declined by 80%. The much larger
markets in the United Kingdom (UK) and France also saw reduced activity in the
first half (H1) of 2011 compared with H2 2010, while Germany saw a 6% increase
and Central and Eastern European (CEE) markets in aggregate recorded a 49% rise
in investment volume.
Office yields across
Europe fell slightly during Q3 2011. The
CBRE Prime Office Yield Index for the EU-15 fell byfour basis points in the quarter and 20 basis points against the same
quarter last year. Twelve of the 53 locations surveyed saw downward yield
movements this quarter, 40 remained unchanged, and one saw an increase. The
largest decrease was in Istanbul (down 75 basis points to 7.75%). Durban and St
Petersburg each recorded falls of 50 basis points, while the remaining falls
were of 25 basis points or less. The only increase in the quarter was in Tel
Aviv where yields rose by 50 basis points to 8%. Prime office yields in Dublin
are 7.5% according to CBRE.
Retail yields were
unchanged in the third quarter, with the
CBRE EU-15 Prime Retail Yield Index down only two basis points to
4.96%. Ten of the 47 locations surveyed saw downward yield movements this
quarter, 35 remained unchanged, and two saw an increase. The
largest decreases were in St Petersburg (down 100 basis points to 12.0%) and
Moscow (down 75 basis points to 9.75%). The largest increase was in Tel Aviv
(up 50 basis points to 8.0%). Prime retail yields in Dublin are 6.5% according
Industrial yields were
effectively unchanged over the quarter, with the
CBRE Prime Industrial Yield Index for the EU-15 down by
one basis point, leaving it 15 basis points lower on the year. Ten of
the 46 locations surveyed saw downward yield movements this quarter, 33 remained
unchanged, and three saw an increase. The largest decrease was recorded in
Istanbul, where yields fell by 100 basis points to 10.5%. Moscow and St
Petersburg each saw falls of 50 basis points. Increases of 50 basis points were
observed in Lisbon and Barcelona.
Prime office rents
across Europe remained stable during Q3 2011. The CBRE
Prime Office Rent Index for the EU-15 was up by a notional 0.1% in the quarter,
but showed a year-on-year increase of 1.9%. Eight of the 53
locations in the survey saw increases in the level of prime rent, four fell, and
41 remained unchanged. The largest increase in Europe occurred in Moscow, where
rents increased by 9.5% over the quarter to $1150 per sq m per annum. Any
rental declines were generally slight, but Sofia saw a decline of 3.6% to €162
per sq m per annum.
Prime rents in the retail
sector rose in the third quarter with the
CBRE Prime Retail Rent index for the EU-15 up by 0.7% in the quarter and
4.3% over the year. Seven of the 47 locations surveyed registered an
increase, 40 remained unchanged, and none fell. Among the major centres, the
largest increases occurred in the City of London (up by 5.6% to £950 per sq ft
per annum) and Milan (up by 5.3% to €4,000 per sq m per annum).
rents were effectively stable in the third quarter. The
CBRE Industrial Rent Index for the EU-15 rose by 0.1% in
Q3 and is down by 0.2% over the year. Thirty six of the 46 locations in the
survey saw the prime rent remaining stable, two fell, and eight showed an
increase. The largest fall in Europe was in Vienna (down 1.02% to €58.20 per sq
m per annum) while the largest increases were in Istanbul (up 7.7% to $7.00 per
sq m per month) and Rotterdam (up 4.5% to €70.00 per sq m per annum).