Office
Office rental growth across Europe accelerated to +1.8% quarter on quarter in Q3 2022. This pushed annual growth to +5.3%. On a quarterly basis the strongest growth was observed in Benelux markets, peripheral Europe and the UK.Despite the continued strength in leasing conditions and rising rents, investment markets are on the turn. Concerns over the economic outlook, rising inflation and finance rates has provided an air of caution and buyers unwilling to pay previous price levels. Prime yields rose 26bps over the quarter to 4.27% with increases across all markets, but notably Benelux, France, Germany and the UK. All tracked markets now expecting further outward shifts.
Retail
Retail markets remain subdued with growing headwinds leading to a cooling in some markets with rental growth turning marginally negative over the quarter (-0.3% Q/Q). In total a quarter of markets reported a fall including Germany, the Nordics and the UK.
Compared to other asset classes, high street yields have not moved as much, up just 9 bps over the quarter to 4.24%. The high street was impacted more during the pandemic and has been slow to recover post pandemic. Germany, the Nordics, some southern European markets and the UK saw the biggest shift at over 10bps. All markets expect a further outward shift.
Logistics
Continued demand for logistics premises and rising construction costs have maintained the upward pressure on rents with the European average up +4.2% over the quarter taking annual growth to +11.9%, the strongest level on record since the early 1990’s. Germany led the way with growth of +8.9% followed by CEE markets +5.7% and over +4% growth across the Benelux, Nordics and the UK.
Despite the rise, yields have gone into reverse with the average European logistics yield now at 4.49% a 31bp increase on a quarter ago. Yields edged out in over 80% of markets tracked, with the UK seeing the biggest move (+56bps), followed by Germany (+50bps), Benelux (+34bps) and Nordics (+33bps). Further outwards shifts are expected across the board.
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.
