Prime rents and yields across key European markets remained broadly stable in the second quarter (Q2) of 2010, according to CB Richard EllisÃÂ latest EMEA Rents and Yields Indices. Evidence of rental improvement was most apparent in the office sector, where prime rents rose for the second consecutive quarter and were 1.7% higher than at the end of 2009. While prime rents remained stable in most office markets, increases were registered in the key City of London and Paris markets. Rents in the retail and industrial sectors edged down very slightly. Across all three property sectors, prime rents for the region as a whole were roughly on par with their level of a year ago.
Prime yields continued to see modest downward pressure in Q2, and as a result, ended the period 30-50 basis points lower than a year ago. Surprisingly, the degree of downward pressure was least pronounced in the office market, where yields fell by only four basis points in Q2 compared with over 15 basis points in each of the previous two quarters. In the retail and industrial sectors, the yield change was less than 10 basis points in the quarter. Around a third of the markets covered across all property sectors saw some fall in prime yields in Q2.
Commenting on these changes, Richard Holberton, Director, EMEA Research, said: ÃÂThe uncertain short-term economic outlook is continuing to restrain occupier demand, resulting in generally limited rental movements, albeit with stronger signals coming out of the key London and Paris markets. It will require clearer signs of economic recovery momentum for rental increases to become more widespread. Partly because of this, investors remain strongly focused on core prime properties, as reflected in downward movements in prime yields across a broad spread of locations.ÃÂ
Yields
Office yields across Europe fell during Q2 2010. The CB Richard Ellis office yield index for the EU-15 fell by four basis points in the quarter and 50 basis points from the same quarter last year. Seventeen of the 55 markets in the survey saw downward yield movement, 34 remained unchanged and four saw an increase. The largest yield reductions were in Moscow (down 100 basis points to 11%) and The Hague (down by 35 basis points to 5.75%). The largest increases were in Thessaloniki where yields increased by 50 basis points to 8.00%, and Athens where there was an increase of 25 basis points to 6.75%.
Retail yields fell during the quarter. The CB Richard Ellis retail yield index for the EU-15 fell by eight basis points in the quarter and 31 basis points from the same time last year. Seventeen of the 49 markets saw downward yield movements, 31 remained unchanged and just one saw an increase. The single increase was in Athens where yields rose by 50 basis points to 6.50%. The largest yield reductions, of 50 basis points, were recorded in Bucharest (down to 11%), Budapest (down to 7.25%), Stockholm and Edinburgh (both down to 5.25%) with a further six locations showing a yield reduction of 25 basis points.
Industrial yields fell during the quarter. The CB Richard Ellis industrial yield index for the EU-15 fell by seven basis points in the quarter and 34 basis points on the year. Fourteen of the 46 markets in the survey saw downward yield movements, 31 remained unchanged and just one saw an increase. The single yield increase was in Athens (up 25 basis points to 8.50%). The largest yield reduction was in Dubai (100 basis points to 12%), with 50 basis point reductions in Paris (to 7.25%) and Warsaw (to 8.25%).
Rents
Prime office rents across Europe increased slightly during Q2 2010. The CB Richard Ellis office rent index for the EU-15 area increased by 0.5% in the quarter, but showed a year-on-year fall of 0.8%. Nine of the 55 markets in the survey saw increases in the level of prime rent, six fell and 40 remained unchanged. The largest increases occurred in Oslo, where rents increased by 6.6% over the quarter to ÃÂ402 per sq m per annum and the City of London where rents increased by 6.3% to ÃÂ657 per sq m per annum. The largest falls were in Dubai (down 7.5% to ÃÂ886 per sq m per annum) and Lyon (down 6.5% to ÃÂ230 per sq m per annum).
Prime rents in the retail sector fell slightly in the quarter. The CB Richard Ellis retail rent index for the EU-15 fell by 0.4% in the quarter, but showed a slight increase of 0.2% over the year. Seven of the 49 markets in the survey saw a decline in the prime rent level, 38 remained unchanged, and four showed increases. The largest falls were recorded in Dublin (down 19.2% in the quarter to ÃÂ2,467 per sq m per annum) and Sofia (down 11% to ÃÂ480 per sq m per annum). The largest increases were in The Hague, where rents increased by 16% to ÃÂ1,450 per sq m per annum and Tel Aviv, up by 11% to ÃÂ980 per sq m per annum.
European industrial rents also saw minimal change in the quarter. The CB Richard Ellis industrial rent index for the EU-15 fell by 0.3%, taking the year-on-year rate of growth to -1.1%. Thirty-six of the 46 markets in the survey saw the prime rent remaining stable, six declined, and four showed an increase. The largest falls were in Dubai (down 16% to ÃÂ59 per sq m per annum) and Dublin (down 4% to ÃÂ82 per sq m per annum). The largest increases occurred in Tel Aviv and Bratislava, where rents increased by 12.5% in the quarter to ÃÂ110 and ÃÂ54 per sq m per annum respectively.
Yields in the CEE region fell in the quarter. ÃÂWe see three different trends in the CEE countries.ààsaid Gábor Borbély CEE Research Analyst of CBRE. ÃÂIn Prague and in Budapest yields are decreasing across all property sectors although very moderately. In Southeast Europe there is no space for yield reduction, what is more, because of falling rents we see downward pressure on property values. Thirdly, in Russian and Ukrainian markets where last year property values decreased now correction is dominant: yields are falling and rents are increasing.ÃÂ
