Office rental growth across Europe slipped further into negative territory in Q4 2020 with prime average rent down (-0.5%) taking annual average 0.8% lower on Q4 2019, its weakest annual performance since Q2 2010 in the wake of the global financial crisis. Most markets saw either flat or negative growth over the quarter. Prime yields registered marginal compression taking the European average to 4.3%, reversing some of the recent outward movement. Apart from some select markets, we see limited scope for rental growth further downward pressure on yields.
The retail sector continues to struggle with prime high street rents falling a further 2.6% over the quarter taking annual rents (-10.6%) lower over the year. This is the worst performance on record since the early 1990s. A total of 22 out of 46 markets tracked reported a fall over the quarter and 41 markets reporting a fall over the year. The largest drops year-on-year have been in the UK, Benelux, the CEE and Germany. The average prime yield rose to 4.72%, up from 4.3% a year ago.
The logistics sector continues to report a relatively strong performance on the back of stronger demand. Rents grew (+0.8%) over the quarter and by an annualised (+1.9%). The UK, Germany, France and Benelux registered some of the strongest uplifts over the year. Given the continued confidence in the sector and robust leasing markets conditions, prime yields fell a further 19bps over the quarter to 5.05%. Looking forward to 2021, logistics is the only sector where we see rental growth and yield compression across a majority of markets.
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 Bratislava, the Czech Republic, Hungary, Poland and Romania.