Rental turnovers and vacancy rates fell slightly overall in the major European office markets, although the individual locations showed contrasting performances. That is the core statement of IVG Immobilien AG and Cushman & Wakefield Healey & Baker's real estate barometer for the third quarter of 2005.
"There are winner cities, but also locations with losses. The figures indicate that the development of the European office markets is staggered. For investors, this means that they must look carefully at what European locations they invest in. However, it also opens up additional opportunities through selective geographical diversification of investments", says Bernd Kottmann, member of the board and responsible for portfolio management. In 2004, the upturn on the markets was much more uniform.
Rental revenues continue to grow
In the third quarter of 2005, with a rise of nearly 7%, the rental volume again gained far more strongly than in the second quarter, when the increase was 2.1%. Overall, 2.2 million square metres of office space were leased in the 21 major cities assessed. Compared with the third quarter of 2004, the increase remained at just under 5%, although there are significant differences between Central and Western Europe. Budapest, Prague and Warsaw an increase of 49%, whereas only 2.1% more was leased in Western Europe.
Vacancy rates remain stable
On average, the vacancy rate in the major cities of Western Europe included in the study was 9.4%. The figure was 9.5% a year ago, which represented the highest level after the collapse of the office markets in 2002. Further falls in vacancy rates are forecast for most locations in Western Europe.
Stable prime rents
On average, there was no movement in prime rents over the last twelve months. "In 2004, prime rents increased noticeably in Western Europe and fell in Eastern Europe. It now looks as though the price rise is taking a break, at least in the West. In contrast, rents have bottomed out in Budapest, Prague and Warsaw", says Kottmann.
Yield compression continues
The decline in yields continues. Alongside this, real estate prices continue to rise. The average return on investments in prime office properties fell from 5.8% to 5.3% within a year in Western Europe. In Central Europe, prime yields fell significantly from 8% to 6.9%. Three years ago, the average figure was as high as 9.2%. "The falling yields are caused by the positive medium-term prospects of the European office markets and the rise in cross-border real estate investments by institutional investors", says Kottmann.
Source: IVG Immobilien
