Demand for good quality commercial space driven by the expansion of the technology and e-commerce sector compensate for pessimistic economic forecasts for Europe. Sentiments among investors are positive and the industrial market has the highest yields, according to report  „Euro Cities” prepared by Gerald Eve International and AXI IMMO.

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 AXI IMMO, the Polish consulting firm active on the commercial real estate market for 10 years and Gerald Eve International prepared a report concerning the commercial real estate sector in Europe. The publication „Euro Cities” drawn up by experts from 17 European countries analyses data, determinants and development prospects of the investment market in 31 cities with the greatest potential.

The results of the commercial real estate market and the political and economic situation in Europe and in the world

The authors of the „Euro Cities” report presents the European commercial real estate market regarding Europe’s current political and economic situation, as well as global. The last months of 2018 and 2019 saw the deterioration of economic indicators in most European countries, most notably in Germany with automotive sector problems.  The economic slowdown on the Old Continent was the result of international trade problems, as well as of social tensions. The global uncertainty rise due to worsening relationships between Russia, the USA, and China. In Europe protests in France and strikes in Portugal cause an increased vigilance among investors. However, the biggest challenge is a prolonged absence of any agreement on Brexit in the British Parliament, the consequences of which are difficult to foresee and can have positive (especially for the competitive price of Central and Eastern Europe) and negative.

According to experts from Gerald Eve International, despite the political tensions the results of the investment market in real estate are good and shows positive moods among investors.

Renata Osiecka, Managing Partner at AXI IMMO and one of the authors of the „Euro Cities”  report explains: “It is clear that the current geopolitical situation has an impact for investors sentiments, but the most important determinant of decisions are commercial marker results. It is a fact that the demand in this market segment remains high. It reduces risk and maintains activity in the investment market, which is full of financial capital and the entities willing to invest in several types of asset.”

The „Euro Cities” publication enables the comparison and in-depth analysis of data and trends in the lease market and their impact on investment activity in office and industrial real estate segments. 

Office assets still strong thanks to new technologies

The office assets are still the most frequently chosen by investors among commercial real estates, the report by AXI IMMO and Gerald Eve International reads. The demand in the office space market remains strong driving by the media and technology sector.

According to the report, an additional 2.8 million office-based jobs will create over the next five years within the European Union (excluding the UK), which will help maintain a strong demand for new space.  Among European capitals presented in the publication, the highest prime rental rates per year are in London (1,312 EUR /sqm.)  and Paris (819 EUR/sq m.), and the lowest in Bratislava (192 EUR/sq m.) and Prague (258 EUR/sq m.). In Warsaw, the prime rental rents stand at 492 EUR per sq m. per year. An increase in rents is expected in 11 of the 31 analysed cities. In 20 cities the current level of the rents is expected. Falling prime rental rates are forecasted only in Istanbul.

Office yields

As regards the prime yields during the period from Q3 / 2017 to Q4 / 2018, a decrease was marked in 22 office space markets, the same level of yields was maintained in 9 cities and only in Stambul was noticed an increase. The highest prime yields are in Bratislava (6,3%) and Istanbul (6%), the lowest is in Paris (3,2%)

Until the end of 2019 maintaining current yield levels in  14 of the 31 analysed cities are expected. The fall is for 6 cities forecasted, including but not limited to: Bratislava, Paris and Vien. Only in Istanbul experts predicts an increase of yields.

Office assets remains the most  wanted product, but is diversification of  portfolios is more and more observable throughout Europen markets. The Its popularity of industrial and alternative asset classes is increasing.

Investors targets industrial market due to the e-commerce sector

The warehouse market in Europe enjoys high tenant activity. Demand for warehouse and logistics space is driven by changes in consumer habits, the expansion of e-commerce and the related development of last mile logistics, reads the „Euro Cities” report.

Stable incomes tempt investors

The highest rents for logistics space are maintained, as in the office sector, in London (179 EUR/sq m per year) and Dublin (100 EUR/sq m per year). The lowest rental rates in the list of capitals are listed in Warsaw and Instanbul (in both cities 100 EUR/sq m per year).  In the warehouse market, the increase in prime rents in 14 cities is expected, including in London, Manchester, Lisbon, Amsterdam, Hamburg, Brno, as weel as in the Polish cities studied, i.e. in Warsaw and Wroclaw. The maintenance of rents at the same level is forecasted, among others in Berlin, Frankfurt, Pargue, Brussels or Copenhagen. In the group of cities surveyed, only two – Istanbul and Bratislava, show a downward trend in terms of rental rates for warehouse space.  High activity of tenants on the warehouse market determines the interest in industrial assets among investors.

“Only in Poland, the total transaction value amounted to EUR 1.8 billion, which was almost twice as high as in the previous year. It is worth adding that over EUR 1.3 billion were portfolio acquisitions, which is related to the profile of investment platforms.“ – comments Renata Osiecka from AXI IMMO.

Warehouse yields

During the period from Q3 / 2017 to Q4 / 2018, a drop in prime yields in 28 warehouse markets was noticeable. In 2 of the surveyed cities yields remained at the same level and only in one city, there was an increase. The highest prime yields are in Instanbul (10%), and Bratislava (7%) the lowest are in London (3,5%). The Central and Eastern European market is becoming more and more popular among investors from Asia, who rate it as safe and ensuring higher return rates on investments. In Poland further compression of yields is visible, the best e-commerce prime projects have a yields of 5.0-5.5%, in the case of portfolio purchases, the rates are higher by 100-150 basis points.

 

More information in the report „Euro Cities” prepared by AXI IMMO and Gerald Eve International.