Offices was the strongest performing sector with rental growth up 0.4% quarter on quarter and 3.6% year on year. No office markets registered a fall in rents over the quarter with growth restricted to just a handful of locations. Some of the UK’s regional office markets – Leeds (+6.7%) and Edinburgh (+5.7%) benefited from improved demand and more positive sentiment in the wake of a clear UK election result in December. Hamburg (+3.4%) and Berlin (2.6%) continued the positive growth story of strong demand and low vacancy seen across many German cities.
Retail remained in negative territory, reflective of the broader structural change in the sector reeling from the rise in online sales, and which temporary store closures will only accelerate further change. To date rental growth has been limited to a handful of markets, however sentiment is turning negative, with the vast majority of the 46 retail markets tracked now expecting falling rents and outward yield movements over the course of 2020.
The logistics sector maintains a degree of resilience with still positive rental growth and yield compression. Rents rose 0.1% over the quarter pushing annual growth to 2.5%, albeit down on 3.2% last quarter. Although supply chains remain critical in the pandemic, the sector is not immune from weaker trade. Only four markets registered growth in Q1 2020 compared to sixteen in Q4 19, with two of these markets in the Netherlands – The Hague (+9%) and Rotterdam (+1.5%).