European offices have recorded eight quarters of continuous rental growth by achieving a 0.7% increase in Q3 2018, according to Cushman & Wakefield’s latest DNA of Real Estate report.
On an annual basis, European offices have posted the strongest rental growth, at 2.5%. European logistic rents, meanwhile, grew by an annualised 1.8%, in line with the 1.9% last quarter and is the strongest rate of growth since 2008.
In contrast, while retail rents have recovered strongly since the financial crisis and are more than 30% above 2008 levels, supported by strong growth across Western Europe, more recently the performance has been much weaker and has reported a fall of 0.4% in Q3 2018 and a fall of 0.5% on an annualised basis.
Nigel Almond, Head of Data Analytics at Cushman & Wakefield, commented: “Across all property types, the core European markets of France, Germany, Nordics, Benelux and the UK have largely recovered since the financial crisis with rents now at or above pre-crisis levels. Semi-core markets – including Ireland, Italy, Portugal, CEE and Spain – were hit harder post crisis, but high street rents have generally now recovered any losses; underscoring demand for prime units in key cities across Europe.”
Simon Marshall, Associate in Cushman & Wakefield’s Capital Markets team in Manchester comments on the outlook for the North West: “As we approach the Brexit date in April, we can expect to see greater tenant covenant focus, especially in the Industrial sector, as prospective investors endeavour to understand how reliant tenants’ businesses are on imports and exports, and the likely consequences of future tariffs on profitability. Despite this, the North West industrial sector continues to thrive with exceptionally strong rental values being achieved in the recognised locations of Trafford Park, Warrington and South Manchester, with new build rents approaching the £8 psf mark and quality refurbished product comfortably in the £7’s psf. Multi-let sales in Warrington (Grandstand) and Salford Quays (Olympic Court) achieved yields sub 5%, demonstrating the North West’s continued appeal for the most aggressive investors and belief in rental growth.
He continued: “The Manchester city centre Office market has seen fewer transactions than recent years, although Q4 is set to see a flurry of activity. Those opportunities openly marketed have attracted significant interest in a market that continues to benefit from a supply/demand imbalance. New development completing in 2019 and beyond is already exhibiting large numbers of pre-lets, which will prevent ‘a flood’ of new supply in the short to medium-term and consequently we expect rental growth to be maintained. The recent letting to Knights Legal at AEW’s refurbished 101 Barbirolli at £33 psf sets a strong benchmark heading into 2019, with new build quoting rents at £35psf.
“Retail continues to see considerable headwinds, and Manchester has not been insulated from this, with the well-publicised demise of House of Fraser – the iconic Deansgate store is to close in January 2019. 2018 has seen little retail investment activity in prime Manchester outside of DTZi’s continued pursuit of assets on King Street, in their endeavours to combat the historic disparate ownership and piece together a more meaningful block. Rental levels, however, remain strong on Market Street, with Zone A’s broadly £300 psf, and a number of units are currently under refurbishment to bring them in line with current retailer demands for large soft frontages. The former BHS rumoured to be under offer to Uniqlo and the former Mango are prime examples of this. Despite the lack of activity in a rapidly changing landscape, there is some sentiment to suggest an over-correction in pricing in prime areas. Whatever the future of the high street looks like, prime pitches will undoubtedly still have a role to play.
“The outlook for Retail Warehousing in 2019 is uncertain, with a number of traditional investors in the sector seeking to exit from core plus assets. CBREGI and LaSalle have been at the forefront of this disposal of stock, and the North West has seen several traditionally c.6% assets drift out into the 7%’s. With retailers in this sector continuing to feel the pinch, it’s likely that anything other than the most prime assets will continue to feel the pressure. Advertised asset management angles for pod development are often at odds with existing retailers desire for line of sight to main road frontages and a reluctance to lose car parking spaces, making genuine ‘value add’ a challenge.”
