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News : Property Last Updated: Oct 13, 2011 - 5:14 AM

European office rent yields Europe fell slightly during Q3 2011; Debt crisis creates divergent national economic performance
By Finfacts Team
Oct 13, 2011 - 3:04 AM

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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 increased polarisation 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.

The 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.”

Marie 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.

In 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.

At a 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 to CBRE.

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).

European industrial 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).

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