Office
Office rental growth across Europe accelerated to +2.1% in Q4 2022 compared with Q3 2022, with much of the growth in Germany and more peripheral markets across Europe.Compared to Q4 2021 annual growth rose to 6.2%, its strongest year-on-year rise since 2008. The strongest growth (y-oy) was in more peripheral markets of Europe (+11.3%) mainly driven by improvements in Turkey. Germany (+8.7%), Benelux (+7.3%) and Semi-Core markets covering Ireland, Italy, Portugal and Spain grew (+7.0%).
Rising interest rates, elevated levels of inflation and concerns economic growth have impacted investor demand, despite occupational markets remaining solid at the prime end of the market. As a consequence office yields have edged out in 42 out of 46 markets over the fourth quarter (rising to 44 markets over 2022). The European prime yield now stands at 4.58%, 31bps higher on Q3 22 and 61bps higher on a year ago.
Retail
Retail markets continue to face headwinds, though positively prime rents across the European markets tracked grew on average (+1.1%) over the quarter pushing year-on-year growth to (+1.6%). Stronger growth in peripheral markets of Europe outweighed falls in some more mature markets on an annual basis. During Q4 most markets were flat, with 31 out of 41 locations showing no growth.
Compared to other asset classes, high street yields have not moved as much, although movement did accelerate in Q4 22 with the prime European yield up 17bps, with the full year-on-year shift reaching 22bps. Weak rental growth across the sector has left values falling.
Logistics
Continued demand for logistics premises and rising construction costs have maintained the upward pressure on rents with the average of prime centres covered across Europe up (+3.5%) over the quarter taking annual growth to +13.9%, the strongest since the early 1990’s. France (+12%), CEE (+4.2%) and Peripheral markets across Europe (+5.4%) showed the strongest growth over the quarter.
The European prime yield reached 4.88% in Q4, a 41bp rise compared to Q3 22, reflecting much of the 68bp rise over the course of 2022 as a whole. The UK saw the biggest quarterly and annual rise (+81bps and 141bps respectively). France (40bps and 87bps), Germany (40bps and 100bps) and the Nordics (51bps and 83bps) also saw stronger increases on a quarterly and annual basis.
Notes:
DNA of Real Estate tracks prime rents and yields in 46 cities across Europe.
Nordics covers markets in Denmark, Finland, Norway and Sweden. Benelux covers Belgium, Luxembourg and the Netherlands. Semi-core covers markets in Ireland, Italy, Portugal and Spain. CEE covers markets in the Czech Republic, Hungary, Poland, Romania and Slovakia.
