Office sector outshines retail as top EU real estate performer in Q4

Europe’s office sector surpassed retail to register the strongest performance on the commercial real estate market in the fourth quarter, according to the latest European Valuation Monitor report from CBRE.

The report- which takes into account the movement of capital value by comparing the valuations of investment portfolios across the continent – found that the office sector suffered only a minor decrease in capital value of -0.5% in Q4. The industrial and retail sectors fared less well, having witnessed a contraction of -1.0% and 1.1% respectively.

Such returns have been driven by strong annual performances in the French, British and Nordic regions, with Norway, Sweden and Finland registering the highest individual profits in the fourth quarter.

Capital value on EU commercial real estate in Q4 maintained its integrity with only a minor decline of 0.8%. However, an annual decline in the office and retail markets of 2.5% and 2.4% respectively brings the findings of the European Valuation Monitor to their lowest level since Q3, 2009.

Simon Threlfall, associate director of EMEA valuation at CBRE, attributes the findings to an overall decrease in yields on leases on individual properties. He said: “Capital value changes in our European Valuation Monitor have been driven by yield changes over most of the past year, rather than market trends.

“Our latest data shows that the All Property Prime Yield across Europe fell slightly in Q4, dropping 3 basis points to 5.75%. This continues a period of stability in prime yields across the region that has seen little overall change in the last 18 months.

“We do, however, believe that we will see some change in the current polarization of yields over the next 12 months as investors broaden their investment criteria to also include good secondary assets, which are looking increasingly well priced and can provide better value opportunities.”