Savills European 'Quarterly data bulletin', which examines office, retail and industrial sectors, finds the average yield gap between prime and secondary office properties in the CBD, which narrowed down to almost 60 basis points during the peak of the market, has now widened again to around 85 basis points at end Q209, back to mid 2006 levels.
The international property advisor states the widest gap is evident in Lyon, Oslo and London's West End markets, and the narrowest in the CBDs of the German and Italian markets. The report finds that negative rental growth has slowed down on average compared to Q109, however annual rental growth has fallen further on average at -12% for year end Q209 compared to -7.5% at year end Q208 for prime office locations across the survey area (CBD and non-CBD).
Eri Mitsostergiou of Savills European research says: "A modest increase in investment activity in the second quarter has held back the significant upward yield shift experienced over the previous three quarters. On the other hand many markets are still at the early down-swing stage of the rental cycle."
In the industrial sector, Savills finds yields are on average 83 basis points higher compared to last year, they have moved out on average by six basis points in Q2 09 and there is renewed interest in the sector. The markets that continued to experience significant corrections in Q2 compared to Q1 were Ireland and Iberia. Rental growth dropped further in Q2 from -2.8% to -8.5% as warehousing rents experienced quarterly falls ranging from -4.1% (Warsaw) to -12.5% (Thessaloniki). Italian, French, Dutch and Nordic markets remained quite stable.
In terms of retail, rents continued to fall in Q2 and are now on average 4% (high street) to 9% (shopping centrescenters) lower than a year ago albeit prime unit rental falls have been more modest, as they remain in demand. With regards to retail yield shift, overall yields have experienced significant upward movement over the past four quarters, recording a difference of 145 basis points on average for both shopping centrescenters and retail warehouses in Q209. Above average annual yield shift, ranging from 175 to 300 basis points has been noted in Dublin, Lisbon, Madrid and London.
Furthermore the gap has widened between the average prime yields and the average secondary yields for both shopping centrescenters and retail parks with shopping centre yields at more than 100 basis points higher than that applied on secondary properties, compared to less than 80 basis points two years ago. The same comparison for retail warehouses results in a difference of almost 90 basis points today compared to less than 50 two years ago.