• Industrial occupier demand in the EMEA region continued to strengthen in the first quarter, with a substantial y-on-y take-up growth for warehousing space across Europe. • As a result, rental growth is visible in a small but growing number of markets • Feeding both occupier and investor demand, the development pipeline across Europe is growing, both in size and in scale. • Investment activity slowed down in the first quarter due to lack of product, but investor appetite is still strong and continues to put downward pressure on yields
Hotel investment growth outpaces other CRE asset classes in Q1 2015. Quantitative easing and a low interest rate environment are resulting in increased appetite to invest in consumer-driven real estate asset classes. European hotels 2015 Q1 Y-o-Y growth in investment volume reaches +114%. The three largest markets of the United Kingdom, Germany and France all see large Y-o-Y increases in Q1 transaction volume on the back of strong trading performance and anticipated future growth. Southern Europe sees a +301% Y-o-Y increase in Q1 transaction volumes as investors take a particular focus on acquiring hotel assets in Spain. CEE and Austria is benefitting from a spill-over of capital previously looking at assets in Western Europe, based on attractive yields and healthy trading performance data. Yield sharpening is particularly apparent for properties encumbered by an operational lease and those with vacant possession (unencumbered).
Industrials Lead Further Yield Contraction Across All Sectors Commercial real estate saw improvements in both rents and yields in Q1 2015, with all sectors seeing upward movement in rents and a further contraction in yields. The industrial sector led the contraction in prime yields over the quarter, with the CBRE EMEA Industrial Yield Index down by 18bps. This was driven by yields decreasing in 26 of the 51 industrial locations surveyed, including all of the major German markets, the key UK cities of Edinburgh, Glasgow and Manchester, as well as Madrid, Amsterdam and Stockholm. The CBRE EMEA Office Yield Index decreased by 6bps in Q1 2015. This was driven by yield contractions in a number of major markets such as London’s West End, Frankfurt, Madrid and Paris. In the retail sector, yields dropped by 25bps in Paris and in both the London City and the West End markets. Furthermore, both Milan and Rome’s yield contracted by 30bps, while retail yields in the main German markets narrowed by 10bps. With many European economies now improving, the CBRE All-Property EMEA Rent Index rose at a similar rate to Q4 2014, increasing by 1.5% over the quarter. However, rental gains showed signs of becoming more widespread, with increases in 38 of the 163 markets covered. The office market accounted for nearly half of these increases, while the retail high street rental index posted the highest growth, up by nearly 2% in the quarter.
2015 began healthily for the European Tier 1 market with take-up reaching 16.3MW. This figure represents 25% of the total take-up for 2014 and a 67% increase on the previous quarter. The most take-up in the first quarter was transacted in Frankfurt with 8.3MW of IT power sold. This is a huge increase of over 900% on what had been an extremely poor Q4 2014 in the Frankfurt market, and was assisted by large wholesale deals. Amsterdam continues to be a very steady market, providing consistency quarter-on-quarter. In contrast, London has struggled but due to its large wholesaler market is much more volatile and more susceptible to spikes in its quarterly take-up.
Aggregate take-up level falls over the quarter but is up on a yearly basis. Prime Rent index up slightly in the quarter. Picture remains very mixed at city level. Strongest drop in EU-28 vacancy index for many quarters. Development completions generally expected to under-respond to increasing demand, at least in the short term.