Prime rents stabilized across Europe during the first three months of 2010, with the majority of markets showing little or no change in any sector, according to CB Richard Ellis's latest EMEA Rent and Yield Indices.
There are now signs of growth in a handful of geographic markets, with sectoral growth most evident in the office index which showed its first quarterly increase in Q1 since the start of the downturn. This office rental growth is being heavily driven by increases in Paris and London and is particularly significant given the office index registered the largest sector falls in the previous quarter. This turnaround is also reflected in the fact that the office market is the sector experiencing the most significant decline in yields, with nearly half of the office locations monitored recording a fall in Q1.
Commenting on these changes, Richard Holberton, Director, EMEA Research, said: "The industrial and retail sectors remained broadly flat in the first quarter, with little change in either rents or yields. However, there has been a turnaround in office market performance in Europe, driven mainly by the core markets of London and Paris. The City of London stands out as a key example, where rents increased by almost 10% and yields contracted by a further 50 basis points in the last quarter. Whilst occupier demand is clearly gaining some momentum elsewhere in Europe, this may take longer to translate into significant rental growth. Vacancy levels are higher in many of the markets in Europe than in the core Paris and London markets and it will take time to absorb this excess supply."
Office yields across Europe fell in the first quarter of 2010. The CB Richard Ellis office yield index for the EU-15 area fell by 15 basis points in the quarter, and 48 basis points from the same quarter last year. Twenty-five of the 55 locations in the survey saw downward yield movements, 29 remained unchanged and just one saw an increase. The largest yield reductions were in Kyiv where yields fell 100 basis points to 14% and in Oslo, London City and West End where yields fell by 50 basis points to 6.25%, 5.50% and 4.25% respectively. The single increase was in Athens where yields increased by 25 basis points to 6.50%.
Retail yields fell marginally during the quarter. The CB Richard Ellis retail yield index for the EU-15 area fell by five basis points in the quarter and 21 basis points from the same point last year. Seventeen of the 49 locations saw downward yield movements, 31 remained unchanged and just one saw an increase. The single increase was in Athens where yields increased by 25 basis points to 6%. The largest yield reductions of 50 basis points were in Bucharest (down to 11.5%) and Edinburgh (5.75%) with a further 10 locations showing a yield reduction of 25 basis points.
Industrial yields fell during the quarter. The CB Richard Ellis industrial yield index for the EU-15 area fell by three basis points in the quarter and 16 basis points on the year. Thirteen of the 46 locations in the survey saw downward yield movements, 31 remained unchanged and two saw an increase. The two yield increases were in Istanbul (up 100 basis points to 11%) and Athens (up 25 basis points to 8.25%). The largest yield reductions were in Kyiv (100 basis points to 16%), with 50 basis points reductions in Paris (to 7.75%) and Oslo (to 7%).
Prime office rents across Europe increased during the first quarter of 2010. The CB Richard Ellis office rent index for the EU-15 area increased by 1.1% in the quarter, but showed a year-on-year fall of 4.5%. Five of the 55 locations in the survey saw increases in the level of prime rent, nine fell and 41 remained unchanged. The largest increases occurred in Tel Aviv, where rents increased by 13% to 231 per m² per annum and the City of London where rents increased by 9% to £47.50 per sq ft² per annum. The largest falls were in Cape Town and Durban where rents fell by 8% to 135 per m² per annum.
Prime rents in the retail sector were effectively unchanged, with the