Europe Growth returns to Europe

This represents the fastest year-on-year rate in over two decades. The increase reflects the continued demand for best in class space in the top locations as demand outstrips a reducing supply of prime buildings in many markets. Of the major European markets tracked by Cushman & Wakefield, the UK saw the strongest year-on-year increase at 7.3 pct, followed by the Central & Eastern Europe (CEE) region at 4.4 pct. At a city level, Prague (+25.6 pct), London (+14.5 pct) and Bristol (+13.3 pct) saw the biggest increases. Yields fell 16bps over the quarter to 4.56%. Yields are now 68 bps lower compared with the same period a year ago, the strongest fall in recent years, though still short of the record 112 bps reduction in 2006. The gap between logistics yields and other use types narrowed to their lowest level on record – just 21bps above high street retail yields and 39bps for offices. Until Q3 2020, the gap had always been above 100bps.

The narrowing of yields between logistics and other asset classes, in particular retail, underscores the clear divide in fortunes between these sectors over the last few years which has accelerated further due to the pandemic. Even allowing for that, logistics remains an attractive proposition for investors, with the prospect for rental growth across most logistics markets, a low-interest rate environment, and yields expected to compress further into 2022

Nigel Almond, head of data & analytics, EMEA at Cushman & Wakefield

On average, prime office rents across the region rose by a further 0.5 pct over the quarter, following an increase of 0.3 pct in Q2 and 0.1 pct in Q1. This pushed annual growth back into positive territory for the first time since the pandemic started to bite in Q2 2020, with rents now 0.3 pct higher year-on-year. No markets saw a fall in rents over the quarter. Growth is supported by increases in the Nordics (+2.5% y-o-y) and Germany (+2.3% y-o-y). Office yields continue to compress with the European prime yield averaging a 3bp reduction over the quarter to a new record low of 4.16%. Excluding the UK, prime office yields now average 3.94 pct having fallen below the 4 pct mark for the first time on record in Q2 2021. With an increasing number of markets forecast to grow as demand for best-in-class office space improves, yields are expected to shrink further over the next twelve months. In contrast, prime retail rents continue to fall, down 1.1 pct over the quarter and by 6.1pct year-on-year. At the same time prime European high street yields stabilised over the quarter, averaging 4.35 pct. Modest compression in Germany and the CEE was offset by flat or a marginal rise in yields elsewhere in Europe, notably in Belgium, Ireland and the Netherlands.