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INSIGHTS

DNA of Real Estate Q4 2023

Prime rental growth remained positive across all sectors on both a quarterly and annual basis during Q4 2023. 

Prime leasing markets proved largely resilient to the headwinds in 2023 with positive rental growth in all quarters of 2023 on both a quarterly and annual basis for office, high street retail and logistics at the European level. Prime yields continued to edge out with offices, followed by logistics and retail seeing the biggest outward shift.

Office

Prime office rental growth showed a modest improvement rising +1.4% Q/Q in Q4 2023 compared with +1.1% in Q3. Annual growth remained strong at +5.4%, up marginally on the +5.2% in Q4 2022. Thirty seven of the 45 markets tracked reported year-on-year growth.

Over the quarter France, Germany and Benelux markets reported the strongest growth at over 2% Q/Q, with the core European markets of the UK, France Germany, and Nordics showing the strongest year-on-year growth of at least 6% p.a.

Prime office yields drifted out by a further 19bps to 5.31%, which was less than the 26bps registered in Q3. Overall yields moved out 80bps over 2023, the biggest move of all sectors and reflects uncertainty and reduced investment activity. France, Germany and Benelux markets all saw year-on-year shifts of over 100bps in 2023.

Retail

Prime high street rents remain subdued with rents up a further +0.4% Q/Q in Q4 2023. Rents rose by +1.5% Y/Y, the fastest rate of growth since Q1 2019. Roughly half of the 40 markets tracked reported year-on-year growth in Q4 2023. The strongest growth was mainly in the Mediterranean markets of Italy, Portugal and Spain.

Prime yields edged out +15bps Q/Q to 4.87%, in line with the +13bps shift in Q2. Prime high street yields are now +54bps higher Y/Y. Germany (+80bps), France (+75bps) and CEE (+74bps) saw the biggest year-on-year movement.

Logistics

The logistics sector continues to see robust growth with rents up +1.6% Q/Q, although compared to recent past it was the weakest reading since Q3 2021. Rents were +8.3% higher year-on-year, down from a peak of +14% in Q1 2023. Core markets across Benelux, the UK, France and Germany saw the biggest Q/Q growth in Q4.

Prime yields saw a more noticeable outward shift of +19bps in Q4 to 5.32%, compared with single digit shifts in both Q2 and Q3. The Nordics +33bps, France +27bps and semi-core markets (including Ireland, Italy, Portugal and Spain) +25bps.

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