12. April 2010 
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European prime rents stabilize across all sectors
Prime rents stabilised across Europe during the first three months of 2010, with the majority of markets showing little or no change in any sector, according to CB Richard Ellis’s latest EMEA Rent and Yield Indices. This was evident in the Dublin market, where rents in all sectors, having experienced some of the more significant falls from peak across Europe have essentially stabilised in recent months.
There are now signs of growth in a handful of geographic markets, with sectoral growth most evident in the office index which showed its first quarterly increase in Q1 since the start of the downturn. This office rental growth is being heavily driven by increases in Paris and London and is particularly significant given the office index registered the largest sector falls in the previous quarter. This turnaround is also reflected in the fact that the office market is the sector experiencing the most significant decline in yields, with nearly half of the office locations monitored recording a fall in Q1.
Commenting on these changes, Marie Hunt, Head of Research at CBRE, Dublin said: “The industrial and retail sectors remained broadly flat in the first quarter, with little change in either rents or yields. The Irish market is firmly following this trend. Following dramatic increases in yields and falls in rents over the last two year period, all sectors have remained stable quarter-on-quarter. However, there has been a turnaround in office market performance in Europe, driven mainly by the core markets of London and Paris. The City of London stands out as a key example, where rents increased by almost 10% and yields contracted by a further 50 basis points in the last quarter. Whilst occupier demand is clearly gaining some momentum elsewhere in Europe, this may take longer to translate into significant rental growth. Vacancy levels are higher in many of the markets in Europe than in the core Paris and London markets and it will take time to absorb this excess supply.”
YIELDS
Office yields across Europe fell in the first quarter of 2010. The CB Richard Ellis office yield index for the EU-15 area fell by 15 basis points in the quarter, and 48 basis points from the same quarter last year. Twenty-five of the 55 locations in the survey saw downward yield movements, 29 remained unchanged and just one saw an increase. The largest yield reductions were in Kyiv where yields fell 100 basis points to 14% and in Oslo, London City and West End where yields fell by 50 basis points to 6.25%, 5.50% and 4.25% respectively. The single increase was in Athens where yields increased by 25 basis points to 6.50%. Prime office yields in Dublin remain stable at 7.5%, having increased by 375 basis points from peak, leading to value declines of more than 50%.
There are now signs of growth in a handful of geographic markets, with sectoral growth most evident in the office index which showed its first quarterly increase in Q1 since the start of the downturn. This office rental growth is being heavily driven by increases in Paris and London and is particularly significant given the office index registered the largest sector falls in the previous quarter. This turnaround is also reflected in the fact that the office market is the sector experiencing the most significant decline in yields, with nearly half of the office locations monitored recording a fall in Q1.
Commenting on these changes, Marie Hunt, Head of Research at CBRE, Dublin said: “The industrial and retail sectors remained broadly flat in the first quarter, with little change in either rents or yields. The Irish market is firmly following this trend. Following dramatic increases in yields and falls in rents over the last two year period, all sectors have remained stable quarter-on-quarter. However, there has been a turnaround in office market performance in Europe, driven mainly by the core markets of London and Paris. The City of London stands out as a key example, where rents increased by almost 10% and yields contracted by a further 50 basis points in the last quarter. Whilst occupier demand is clearly gaining some momentum elsewhere in Europe, this may take longer to translate into significant rental growth. Vacancy levels are higher in many of the markets in Europe than in the core Paris and London markets and it will take time to absorb this excess supply.”
YIELDS
Office yields across Europe fell in the first quarter of 2010. The CB Richard Ellis office yield index for the EU-15 area fell by 15 basis points in the quarter, and 48 basis points from the same quarter last year. Twenty-five of the 55 locations in the survey saw downward yield movements, 29 remained unchanged and just one saw an increase. The largest yield reductions were in Kyiv where yields fell 100 basis points to 14% and in Oslo, London City and West End where yields fell by 50 basis points to 6.25%, 5.50% and 4.25% respectively. The single increase was in Athens where yields increased by 25 basis points to 6.50%. Prime office yields in Dublin remain stable at 7.5%, having increased by 375 basis points from peak, leading to value declines of more than 50%.
