Snapshot: European real estate market in Q1 2019
The pace of yield compression decelerated across Europe’s commercial real estate markets in the first quarter of 2019, according to Cushman & Wakefield’s latest DNA of Real Estate report.
During the first quarter, the report showed a modest increase in the number of markets now reporting an increase in yields, providing a clearer sign that we are late in the investment cycle. A total of seven city sectors reported an increase in yields this quarter, compared to just five in Q4, with far fewer markets reporting a fall – 16 in Q1 versus 44 in Q4. Most increases in Q1 were in the retail sector where the average prime European retail yield rose 2bps to 4.20%.
Yields in both offices and logistics continued to compress, albeit at a weaker pace compared to previous quarters on both a quarterly and annual basis. Office yields shrank 1bp to 4.35% (14bps lower year-on-year) with logistics yields just 4bps lower at 5.68% - this compared a 20bp fall in Q4, though remain 42bps lower year-on-year. This fall underscores the continued demand for logistics assets with investors competing for the best assets.
Yield compression over the quarter was mainly limited to the office and logistics sectors and predominantly across semi-core markets - notably Italy and Spain and CEE markets such as Czech Republic and Poland.
Whilst investment markets appear to be late cycle, we continue to see positive developments in leasing market conditions with average prime European rents increasing on a quarterly basis across all property types – led by offices at 0.7%, and logistics (0.5%) and retail (0.3%). Growth remained positive for both offices (+3%) and logistics (+2.6%) on annual basis, although retail rents continued to slip (-0.4%) year on year.