Knight Frank reports that the Eurozone’s commercial real estate (CRE) market is not sitting on more solid footing thanks to economic improvement as the region emerges from its recession. The Autumn 2013 European Market Indicators report shows that that rents are recovering in many places that were hit hard during the Eurozone debt crisis, including Dublin and Madrid. Prime office rental yields have seen slight improvement, in part driven by strong performance in London and in the logistics sector in many countries including Germany, Romania and Ireland. More stabilization is expected as things continue to improve. For more on this continue reading the following article from Property Wire.
With the Eurozone economy emerging from its long recession, European commercial property markets are showing tentative signs of improvement, according to a new analysis.
The majority of European commercial property markets experienced stable conditions over the last three months, according to Knight Frank’s Autumn 2013 European Market Indicators report.
However, it also points out that there have been pockets of rental growth, and prime yields have hardened in a number of major markets.
Over the last quarter, Knight Frank’s weighted average European prime office rent rose slightly, by 0.2%, to €521 per square meter per annum, driven by growth in Dublin of 7% and Frankfurt with growth of 4%.
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Indeed, Dublin is the first of the peripheral markets to see rents start to recover from the falls recorded in recent years, while prime rents appear to have bottomed out in other hard hit markets, such as Madrid.
The analysis report also says that prime office rents are subject to upward pressure in the Central London market, with rental growth anticipated in the coming quarters.
In the investment market, Knight Frank’s weighted average European prime office yield moved in by three basis points to 5.61%, which was the largest quarterly inward movement recorded since 2011.
Over the last three months, prime office yields hardened by 25 basis points in Prague, Edinburgh and the City of London and remained under modest downward pressure in the key German cities. Following recent outward movements, office yields now appear to have stabilized in peripheral markets, such as Madrid and Milan, buoyed by improved investment activity.
The logistics sector saw significant yield compression over the last three months. The popularity of this sector among investors caused prime yields to harden in markets in Germany, Ireland, Romania and the UK. Fewer yield movements were reported in the retail sector, although prime retail yields hardened in Dublin, as investor interest in the Irish market continued to revive.
The report concludes that for the majority of European markets, prime rents are expected to remain stable until the end of the year. ‘However, with market confidence gradually rising and supply constrained, further pockets of rental growth may appear over forthcoming quarters. Improving investor sentiment should see prime yields come under moderate downward pressure in a growing number of European markets over the medium term,’ it says.
This article was republished with permission from Property Wire.