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.”
Tim Cameron-Jones, International Partner and Head of Capital Markets at Cushman & Wakefield in Leeds said: “There is a very positive story for the Yorkshire Logistics market, which showed the highest rental growth in Europe and an inward shift in yields. Whilst logistics and industrial attracts the attention of many investors, this report illustrates a strong rental performance in prime offices in Yorkshire, which continues to experience upwards pressure. We are all aware of the shift in sentiment in the retail sector and this is releasing investment and value add opportunities for the best retail locations, either in a defensive play through prime assets, or particularly where tenants are predominantly in the discount or value part of that market.”
Offices
Annual growth in European office rents was above 2% for a fifth consecutive quarter, yet it is still 1.4% off its pre-crisis level in Q3 2008.
Rental growth was recorded in 12 out of the 47 monitored markets and the main drive remained in Germany (Munich 4.1%, Hamburg 1.9% and Berlin 1.6%). Elsewhere regional UK markets also showed some upward movement (Bristol 6.2%, Edinburgh 4.5% and Newcastle 2.1%) on the back of solid demand and low availability.
Logistics
Logistics continues to show strong performance in both leasing and investment markets with the strongest quarterly rental growth, on a par with offices and by far the strongest yield compression, as the prime European logistics yield was 5bps lower over the quarter and 41bps year-on-year to 5.9%.
UK regional markets contributed the most to the 0.7% overall rental growth in Europe, including Leeds (8.7%), Cardiff (8.3%) and Bristol (3.6%). This is driven by strong demand from occupiers absorbing new supply in a tight market. Pockets of growth were also found in Moscow (6.6%), Dublin (4.4%) and Budapest (3.8%).
High Street Retail
Only four of the 41 retail markets monitored posted growth this quarter – Prague (4.5%), Stockholm (3.7%), London (2.3%) and Helsinki (1.4%). This limited growth was offset by the double-digit drop in Istanbul to result in an overall 0.4% fall in Europe. In contrast to its blooming office and logistics sectors, German retail rents in the leading five cities have remained static in the past 18 months.
Meanwhile retail yields moved outward in more markets than those that moved inward for a second quarter in a row, and the first time since Q1 2012. UK regional markets saw yield softening by 25bps in Cardiff, Manchester and Newcastle. Istanbul and Zurich also saw high street yields rise leaving the overall European prime weighted average yield up 3bps to 3.25%, the UK is now shifting further away from its all-time low yield of 3.12% recorded in Q2 2016. All other major markets are now at their 10-year low.
