Prime office yields continue to stabilize across Europe

With the bottom of the investment cycle in sight, prime office yields across Europe continued to stabilize during Q3 2009, according to Jones Lang LaSalle’s latest Prime European Office Yields Tracker.

The aggregate yield moved in by 5bps over the quarter to 6%, and this was accounted for mainly by movement in Western Europe, with yields in Central and Eastern Europe (CEE) remaining flat. Only three markets witnessed yield decompressions (Eindhoven, Bucharest and Utrecht).

Of the 46 markets tracked, ten locations experienced yield compressions during Q3 2009 from between 50bps in Leeds to 5bps in Brussels, Gotheburg and Malmö, while London West End moved in by 25bps. London City remained static, but moved in by 25 bps during Q2 2009. However, despite the continued trend of yield stabilisation across Europe prime office yields still remain above their levels this time last year and well above peak yields in 2007, while yields in secondary markets continued to move out. Moscow currently sits 400 bps above Q3 2007 levels, while Bucharest is up by 275 bps and Warsaw 125 bps. Stockholm, Paris and Helsinki all sit 75 bps above their Q3 2007 levels.

Chris Staveley, Head of the Pan European Capital Markets team at Jones Lang LaSalle, said: “Investor appetite continues to focus on prime, income producing assets in core locations. There is a renewed willingness to enter competitive bidding processes for certain situations and drive new pricing levels for the best properties let to secure tenants. London remains at the forefront of investor interest with Paris close behind, but with a growing lack in supply of suitable opportunities investor demand will be forced to look at new locations around Europe which in turn could compress yields further around the region.”

Chris concluded: “Capital values are still significantly behind peak levels and will remain under pressure until new financing becomes available and investors become willing to take on more real estate specific risk. As prime yields stabilize rents continue to decline in most markets however.”

Source: Jones Lang LaSalle