Sweden, where development activity is fuelling the market with forward-funding opportunities, is expected to particularly stand out this year (+8%), whilst in Italy, the year-end investment volume should be in line with 2018.
The lack of disposable stock continues to be the main challenge for investment activity. Additionally, ambitious pricing is often lengthening the process of closing deals. Marcus Lemli, Savills Head of European Investment & CEO Savills Germany, comments: “Demand for European property remains strong and continues to attract capital, 50% of it being cross border. However, the slowing economy and geopolitical uncertainties reinforced a conscious focus on quality, both in prime and secondary markets where activity has been particularly strong.”
In Q1 2019, the volume of investment into European commercial real estate totalled €44.7bn, 21% down on Q1 2018 which was the second highest Q1 volume on record. Greece (+165% year-on-year), Romania (+161%), the Czech Republic (+160%) and Sweden (+72%) all experienced significant investment activity during the first quarter of this year.
Overall, investor demand in Europe remained focussed on offices, accounting for 41% of the total investment volume into commercial property in Q1 2019. The prime CBD and prime non-CBD office yield gap in Europe continued to narrow to 89bps, from 99bps in Q1 2018, due to the tight supply in these markets and reflects the strong investor demand outside of CBDs. “However,” says Lydia Brissy, Director, Savills European Research, “the gap between prime and secondary CBD offices is stabilising at 109bps – just 10bps down yoy – reflecting an increasing focus on quality.”
Looking at quarterly yield movement by country, Savills recorded that only Duesseldorf and Cologne office yields moved in by -10bps, while Amsterdam and London moved out by 25 bps. The rest remained stable.
According to Savills, the retail sector recorded the sharpest decline in investment volumes (-39%) over the last year as investors have become increasingly selective for the right product, setting their sights on prime assets of a certain size with strong grocery and food offerings. Savills recorded that the average prime high street yield (3.41%) softened by 1bp yoy and by 5bps qoq with quarterly outward movements recorded in Prague (50bps), Luxembourg (30bps) and Helsinki (10bps) and inward movement recorded in Duesseldorf.
The average prime retail warehouse yield (5.16%) hardened by 6bps yoy but softened qoq notably due to downward price corrections in London and Paris. Germany’s top six cities saw prime yields continuing to move in (-10bps qoq). In addition, Savills has seen the average prime shopping centre yield (4.58%) move out by 9bps annually although it has remained broadly stable on a quarterly basis.
With regards to the logistics sector however, the picture looks quite different as strong appetite for these assets continues to put downward pressure on prime yields. The average prime yield is now 5.15%, -43bps down yoy.
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