According to international real estate advisor Savills, the average yield in Europe’s prime CBD office market dropped for the first time on record to just below 4% in the first quarter of this year. Prime office yields continued to harden on a quarterly basis in Paris La Défense (-50bps), Amsterdam (-40bps), Vienna (-25bsp), London City (-25bps) and in the ‘big six’* German cities (-10bps). However Savills claims that prime office yields remained stable in most other markets and overall their level is 90bps below the long term average.
Eri Mitsostergiou, Director of European Research, Savills, comments: “Despite the fact that the gap between core and peripheral office markets has been closing over the past few years, in the last quarter it has slightly widened as yields have stabilised in most markets, except the core ones where they continue to harden due to high investor demand.”
In Q1 this year Savills observed that the real estate market in Europe saw little change in terms of transaction volumes, compared to the same period last year. The volume of circa €44.5m was however one third above the ten year long term average, with countries such as Greece (+ 130%), Austria (+50%), Netherlands (+41%), Norway (+35%) and Germany (+34%) showing the biggest increase.
Furthermore, rising cross border investor interest in the Nordic countries and the high volume of cross border investment in Germany, France, Italy and the UK have squeezed the share of domestic investment in these countries. According to Savills, 48% of the overall investment activity in Europe can be attributed to domestic capital, compared to 52% which came from international investors. Their share was highest in Italy (81%), Spain (63%) and Netherlands (61%).
Focusing on the core markets, Savills observed that American investors favoured Germany in Q1 17 compared to Q1 16 (79% yoy), while they invested less in the UK (-56%) and France (-96%). France was however favoured by investors from the EU (+15%) and Asia Pac investors who invested €290m compared to €45m in the first quarter of last year. The UK is the preferred market of Asia Pac investors, where they invested over €3bn just in Q1 17.
