The office sector saw a marked slowdown with a majority (41 out of 48 submarkets) showing no rental growth over the quarter. With a similar trend in Q1 2020, annual growth has slowed to 2.3% pa in Q2 2020 versus 4.2% at Q4 2019. Six markets saw rental falls over the quarter led by Russia (-20%), Istanbul (-6.3%), Stockholm (-2.4%) and London West End (-2.3%). More modest falls were registered in Helsinki and London City. This pulled the European average down 0.6% over the quarter. Prime yields across Europe rose (+6bps) to 4.32% over the quarter, with increases across the UK, France and CEE.
COVID-19 continues to accelerate change on the high street with the prime high street retail rents falling deeper into negative territory (-4.4%) over the quarter and a stronger (-4.7%) fall year on year. Falls were recorded in 30 out of 46 markets compared to eleven last quarter. Central and Eastern European saw the deepest falls (-12.6%), followed by Germany (-9.9%), the UK (-4.4%) and Benelux (-4.3%). Prime yields rose (+20bps to 4.64%), with prime yields rising in 35 out of 46 markets.
The logistics sector has been more resilient in the current crisis, although average European rental growth was flat over the quarter, dragging annual growth down to +2% versus +3% at the start of the year. Growth was recorded in a handful of markets including Manchester (+3.6%), Moscow (+2.6%), Dublin (+1.9%) and Prague (+1.2%). Only Istanbul registered a fall (-9.1%). Positive fundamentals support strong investment with yields compressing a further 2bps over the quarter to 5.39%, with falls mostly in Benelux (-4bps to 5.48%) and markets on the periphery of Europe (-8bps to 7.42%).