According to Savills latest research, the only prime commercial assets in Europe offering yields above 5% are prime logistics warehouses in markets such as Denmark, Czech Republic, Spain, Italy, Portugal, Romania and Belgium, along with prime offices and shopping centres in Athens and Bucharest and prime shopping centres and retail parks in the UK. The average prime yield across Europe for CBD offices stands at 3.7%, with shopping centres at 4.8% and logistics warehouses at 5.4%, says the international real estate advisor (Q1 estimates). Investors looking to achieve higher yields could look for core+/value-add opportunities in the Nordics and South Europe for offices, secondary cities in Southern and Eastern Europe for logistics, the UK and Spain for retail and Southern and Central Europe for purpose-built student accommodation (PBSA) opportunities.
Marcus Lemli, Head of European investment and CEO of Savills in Germany, said: “In what is expected to remain a low-interest rate environment going forward, yield spreads will still remain attractive for those investing in European real estate. Falling expectations of an interest rate rise will continue to attract capital into European real estate as borrowers are able to access debt cheaply. The European composite prime CBD office yield hardened 11 basis points to 3.7% between January 2018 and January 2019, still providing an attractive yield spread of 250 bps over the cost of long term debt.”
Eri Mitsostergiou, Director Savills European Research, added: “For investors looking for higher returns, there are core+/value-add opportunities in market segments with solid fundamentals, such as secondary offices. Most capitals in Europe suffer from undersupply of space in central locations in particular. As a result demand for quality offices in well-connected fringe locations is solid and rents are stable or rising. Core+/value-add opportunities of this type can be found in Stockholm, Copenhagen, Milan, Madrid, Barcelona, Oslo and Paris at yields between 5.25% and 6%, or higher for refurbishments and new developments. Yields may even exceed 6% for offices in secondary cities of the UK, the Netherlands, Sweden or Belgium.”