European occupier markets show signs of recovery, but investor sentiment remains fragile

The latest European rents and yields survey from King Sturge confirms that rents are stabilizing as occupier markets show signs of recovery.
However, the improvement in investment markets witnessed in the second half of last year has moderated recently, as Europe rides out tough economic conditions. While occupier markets are showing signs of strengthening, investor sentiment has now weakened.

In the office sector, prime rents for the majority of cities surveyed were stable or increased during Q2 and the short-term outlook is generally more positive. Those centers that did register a fall in rents are expected to hold stable through to the end of the year.

Office investment pricing remained stable across most of Europe in Q2 and is expected to continue on this trend during the third quarter.

For industrial property, prime rents in the majority of the 26 centers surveyed were stable in Q2 and the outlook is for this to continue next quarter. Where rents are likely to see some upward movement, this will be due to supply constraints reflecting the near absence of speculative development, rather than a significant pick-up in occupier demand.

Prime industrial property yields have begun compressing and there is scope for this to continue in certain markets, thanks to good investor demand and tight supply of prime stock; however occupier fundamentals need to improve to reassure investors.

The European Property Indicators report from King Sturge is a quarterly survey of prime rents and yields in both the office and industrial markets of 25 locations.

Source: King Sturge