Aggregate European take-up bounced back, despite an exceptionally low level of demand in Moscow. An addition to further strong demand in London, was Paris which recorded its highest level of take-up since 2012. Particularly encouraging was the level of demand recorded in southern Europe, with Madrid, Milan and Lisbon all reporting encouraging transaction levels. Despite some decreases in the vacancy rate in western European markets, a large volume of speculative completions in core CEE markets meant the EU-28 vacancy rate remained effectively flat for the second consecutive quarter. Symbolic of the improved economic stability over the past 12 months was an increase in the prime rent in Madrid, the first prime rental growth in a southern European market since the downturn. However, there is a cluster of markets which have moved to the downward curve of the cycle due to an oversupply of newly completed space which is outweighing demand. Although development in western Europe has picked up in 2014 it is heavily focused in a few key markets where the impact on stock levels is less pronounced. In some of the recovery markets there is still almost no development in progress. As demand continues to improve this will further limit the options for occupiers looking to relocate.
Investment transactions in the sector totalled €8.7 billion in the first half of the year, representing the strongest first half since 2007. Leasing activity was buoyant, with core EMEA markets seeing a 42% increase in take-up on 12 months ago. Rental growth continues to rise slowly,with the headline prime index edging up once again. Occupiers are continuing to focus on well located prime assets, which is exerting upward pressure on rents.
RETAIL SECTOR LEADS YIELD IMPROVEMENTS ACROSS EUROPEAN COMMERCIAL PROPERTY MARKET Rental levels remain stable Ireland boasts strong numbers across all sectors CBRE expects more widespread rental growth in H2 2014
Against a backdrop of economic recovery and employment growth, all major city prime office markets are expected to see a return to rental growth, with European average prime rents expected to register modest growth of 2.9% per annum over the next 5 years. The expectation of rental growth, improvement in financial conditions, and increased investor confidence should be sufficient to offset the impact of rising government bond yields at least for the next two years. Prime office markets in Central and Eastern Europe and some Eurozone peripheral countries are forecast to be the top performing cities in terms of total return.
€12.5 BILLION OF EUROPEAN RETAIL INVESTMENT IN Q2 2014 DRIVEN BY LARGE LOT-SIZE AND PORTFOLIO DEALS European retail investment jumped to €12.5 billion in Q2 2014, up 72% on the same quarter last year and 26% above the 3-year quarterly average. Overall, H1 2014 posted the highest H1 total since 2007 with over €22 billion transacted. Large lot-size and portfolio deals drove retail investment activity particularly in France and Iberia, both of which recorded large increases over their 3-year quarterly averages. Investor demand for retail assets improved through the first half of 2014 with many new buyers entering the market, particularly from the US. Strong competition and lack of quality product have led to further yield compression across both high street retail and shopping centres.