Prime rents across the EMEA markets have grown quarter-on-quarter for the first time in two years, including retail, according to figures from Cushman & Wakefield.
Prime high street retail rents edged up by 0.1% in Q1 on the previous quarter, according to the agency’s DNA of Real Estate report. Logistics was the best performer after seeing a 2.7% uplift, while prime offices grew by 1.1%.
Retail rents were 14% below average pre-pandemic levels (Q4 2019). Only three of 41 markets – Milan (+5.8%), Rome (2.4%), and Vienna (3.7%) – posted growth over the period, with improving confidence in the job market and a return of international tourism supporting rental growth in Italy.
C&W also noted that recovery in the occupational markets has led to rising investor appetite in the sector, with retail yields narrowing by 4bps over the quarter to 4.18%, 10bps lower than the previous year. The UK (-25bps) and Nordics (-10bps) saw the biggest quarterly falls.
Prime logistics yields across 43 European markets averaged at 4.12%, which was 8bps lower over the quarter and 63bps lower year-on-year. In the UK, average yields compressed to 3.75%, significantly lower than a 4.56% average yield in UK offices.
C&W said it expected to see continued rental growth in offices and logistics, despite the macro challenges ahead.
Nigel Almond, head of data analytics, EMEA at C&W, said: “For the first time since the onset of the pandemic rents across all three sectors grew on a quarterly basis, with yields also compressing for a second quarter across all sectors at the European level.
“While retail’s rental growth was the lowest of the three sectors, it is perhaps more significant than logistics continuing to excel, as it ends a run of eight successive quarters of falling rents and marks an improvement in investor sentiment towards the sector.”
Sukhdeep Dhillon, head of EMEA forecasting at C&W, said: “Despite increased headwinds, the near-term outlook remains stable. Rising inflation, largely driven by food and energy prices, is becoming more of a concern for central banks, raising expectations for interest rate rises.
“Notwithstanding, the office and logistics sectors’ continued demand for best-in-class space will drive further growth in rents. Retail rents will be nearing their bottom and are set to remain flat with modest falls in selected markets.
“In the investment market, yields in the office and retail sector are expected to remain largely unchanged, with strong fundamentals driving further compression in the logistics sector.”
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