CBRE: Gradual recovery in European property markets continues (EU)

The second quarter of 2011 marked a continued period of general stability in values across the European commercial property market, with prime rents and yields seeing little movement, according to the latest figures released by CB Richard Ellis (CBRE). While value gains are still evident, the pace of recovery remains slow according to CBRE.

Prime rents saw little change overall across Europe in Q2 2011. Retail rents rose by an average of 1.7%, mainly on the back of increases in Germany and France. Office rents were stable, although a number of key markets rose, including Stockholm and Amsterdam. Industrial rents eased very marginally, but the sector also saw the largest quarter-on-quarter yield reduction (22 basis points), reflecting improvement in the main German markets. Office and retail yields each saw declines of five basis points or less.

Richard Holberton, Director of EMEA Research at CB Richard Ellis, said: "In overall terms, the second quarter of 2011 represented a further milestone in the process of gradual value recovery in the European commercial property markets. The absence of any strong general movement in either rents or yields last quarter partly reflects the economic uncertainty caused by the deteriorating news on Greece and other peripheral economies.

"With the continuing threat of higher interest rates and bond yields, investors continue to assess pricing very closely, and investment turnover appears to be moderating. Equally, a much clearer pattern of change is emerging than had been the case, with most of the rent rises and yield reductions occurring in the stronger economic areas such as the Nordic markets, Germany and CEE, and the adverse changes mostly concentrated in the weaker southern European countries."

Office yields across Europe fell slightly during Q2 2011. The CB Richard Ellis Office Yield Index for the EU-15 fell by five basis points in the quarter and 25 basis points against the same quarter last year. Thirteen of the 55 locations in the survey saw downward yield movements this quarter, 36 remained unchanged, and six saw an increase. The largest decrease was in Moscow (down 150 basis points to 9%), followed by Oslo, which saw a yield reduction of 30 basis points. The largest increases were in Lisbon (up by 50 basis points to 7.5%), Oporto (up by 25 basis points to 9%) and Dublin (up by 25 basis points to 7.5%).

Retail yields also fell marginally in Q2, with the CB Richard Ellis Retail Yield Index for the EU-15 down by three basis points in the quarter and 21 basis points from the same time last year. Nine of the 49 locations saw downward yield movements, 38 remained unchanged, and only two saw an increase. Apart from Moscow, which saw a yield shift of 150 basis points to 10.5%, the largest yield reductions were of 25 basis points in a number of locations including London, Stockholm, Oslo and Barcelona. The largest increase was seen in Dublin, which rose by 25 basis points to 6.5%.

Industrial yields displayed the largest quarterly decrease of all commercial property sectors. The CB Richard Ellis Industrial Yield Index for the EU-15 fell by 22 basis points in the second quarter and is 40 basis points lower on the year. Ten of the 46 locations in the survey saw downward yield movements, 34 remained unchanged, and only two saw an increase. The largest yield reductions were in Moscow (down 200 basis points to 11.5%) and Amsterdam (down 30 basis points to 7.5%) while the largest rise was a 50 basis point increase in Dublin to 9.5%.

Prime office rents across Europe remained stable during Q2 2011. The CB Richard Ellis Office Rent Index for the EU-15 area was unchanged in the quarter, but showed a year-on-year increase of 2.1%. 11 of the 55 locations in the survey saw increases in the level of prime rent, four fell, and 40 remained unchanged. The largest increases in Europe occurred in Moscow, where rents increased by 10.5% over the quarter to US $1,050/m²/year and Oslo (up by 9.4% to NOK 3,500/m²/year). The largest fall was in Dublin (down

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