The CBRE 2018 Europe Real Estate Market Outlook provides insight on the key trends our experts think will affect the European property industry over the next 12 months. Key takeaways: Positive economic environment for most of Europe through 2018 to 2019 The prospect of higher long-term interest rates will start to pose a challenge to property pricing Continued strong growth in assets under management will put pressure on investors to deploy capital Another strong year for office-based employment growth in 2018 Growth in appetite for flexible offices will permeate across European markets Retailers increasingly focused on getting their city strategy correct. This will support rental growth at the prime end of the market Very strong demand growth has cut the availability of large-scale modern space, producing capacity constraints in some of the main European logistic hubs. Coupled with strong e-commerce relate growth this will support further rental increase The evolution of the residential sector will be supported by the sheer quantity of capital available for real estate investment in 2018, increasingly through development in order to build scale Stock shortages and premium pricing in gateway cities for the hotel sector will encourage investors to look further afield at secondary and niche opportunities A key feature in 2018 will be operator consolidation across Europe in the alternatives sector. This will present real estate investors with new partnership opportunities as well as enhancing covenant strength.
Values rise; Industrial continues to be the best performer The positive annual capital value performance in Europe continues at a slower pace than seen in Q4 2017. The All Property Index edged up (+1.1%) on the quarter vs (+2.5%) the previous quarter, driven by value growth in The Netherlands, France and Germany. The Industrial sector was the leading performer, with value growth of 2.4% in Q1. Offices saw the next biggest increase, rising 1.3% followed by Retail which remained stable. Grouping equivalent yields into quartiles, we see that there was yield compression across all quartiles. The European market is continuing to see yield compression across most asset types. This is likely to be a sign of the limited availability of top quality assets along with the historically low interest rates. Over the quarter, Netherlands was the best performing at the All Property level, rising by 2.2% and mainly driven by the industrial sector. France and Germany also picked up (1.4% and 1.3%). Over the year, the CEE countries grew at a faster rate 0.3%, however, the Nordic countries increased at a slower pace 7.7%. Overall, the rest of Europe stands at c. +6% on average. All Property values rose by 0.9% in the UK on the quarter which followed a slowing trend compared to the preceding two quarters of 1.9% in Q4 and 1.4% in Q3. Retail is one of the main drivers of this downturn.
Now in its fifth year, the EMEA Fit Out Cost Guide is widely regarded as an industry benchmark. It provides market-leading insights and data to clients, providing invaluable support when it comes to location and fit out decisions. The EMEA edition is part of a global suite of guides, designed to support our clients wherever they do business. This year's edition covers 64 locations. Key features including different specifications, technology and furniture costs, and moves and relocations, are continued, while details around workplace have been updated in line with current trends. The traditional and agile layouts featured in this year’s Guide have also been updated, to reflect client demands, including innovative space and furniture solutions.
In Q1 2018, European hotel transactions amounted to €4.02bn, representing a decline of -9% compared to Q1 2017. Highlights: The UK emerged from Q1 with a +81% y/y increase in hotel investment volume. This growth was underpinned by multiple portfolio deals. Other markets to experience growth included Ireland, The Netherlands and Italy. Markets such as Germany and Spain remain in high investor demand; however, a shortage of stock for sale supressed Q1 deal volumes. Yields generally remained flat across Europe, with most downward pressure on yields in the fixed-income, long-lease space.