Reports from two leading agencies both claim that strong investment activity is continuing to push down property yields across the majority of European markets.
The progress made towards a new Greek bailout agreement has lessened the uncertainty although Greece’s long term future remains in question
DTZ’s European Fair Value Index identifies Europe’s most attractive office, retail and industrial markets for prime commercial property investment over a five year period. The report shows that Europe still offers plenty of opportunities to invest, with 46 markets classified as underpriced during the second quarter of 2015.
Overall the index fell to 62 for the three months, down from 69 the previous quarter. It also named the top ranking markets for April to June as all being within the industrial sector located in Belgium, Denmark and the Baltics.
“The European commercial property market continues to offer attractive opportunities for investors and we think industrial property in particular offers good value due to its high yields,” commented Magali Marton, DTZ’s head of research for Europe, the Middle East and Asia (EMEA).
“The progress made towards a new Greek bailout agreement has lessened the uncertainty over the Eurozone and its property market, although Greece’s long term future remains in question.”
According to the index, the top five underpriced markets in Europe are: Brussels industrial, being the most underpriced, followed by Vilnius, Antwerp and Copenhagen industrials.
DTZ associate director, Matteo Vaglio Gralin, added: “Looking forward we expect the fair value index to fall further as more European property markets become fully priced. However, investors willing to seek them out will still find attractive opportunities.”
Looking further afield, the EMEA Prime Rents and Yields survey from property advisor CBRE also shows that yields fell across all main sectors, to stand at least 30 points lower than they were a year ago.
Twenty-eight of the 58 markets covered by the CBRE survey saw yields fall during the second quarter, with 30 remaining unchanged and none rising. The single largest fall was recorded in Brussels, where yields contracted by 50 basis points, while a number of other major office markets — London, Paris, Frankfurt, Munich, Stockholm and Milan — all witnessed smaller declines.
Attempting to explain the decline, Richard Holberton, senior director of EMEA research at CBRE, commented: “There has been some recent volatility in European bond yields associated with concerns over Greece and the perception of a possible knock-on effect for a small number of countries in the region.
“Despite this, spreads between bond and real estate yields remain at very high levels, as does investment demand for real estate, so we expect the downward pressure on prime yields to persist.
“Evidence of rental momentum, which would further accentuate the downward trajectory in yields, remains limited but is expected to become more widespread over the coming months,” he added.
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