The buoyancy of Europe’s real estate investment markets continued in Q3 2014, in spite of more mixed economic news. Prime yield compression was witnessed in all the main commercial sectors, with the latest quarter shaving a further 5-10bp off already low levels on average.
For offices, rents rose by a further 0.4% on average during Q3. This was not as strong as the previous quarter, however, and there remain patches of weakness, most notably in CEE markets where rents continued to fall. Unit shop rents also rose by 1.2% on average during Q3. This segment also saw the greatest volatility, with some notable falls in CEE retail set against rises elsewhere.
In the warehousing sector, rents dipped again in Q3. The decline was just 0.2% and so less severe than in each of the previous two quarters. This aggregate also masks an uneven trend, with Moscow experiencing a sharp correction in rents while warehousing rents across the rest of Europe were flat on average.
*The following exchange rates were used to convert rents into EUR from the local currency: GBP: 1.289, SEK: 0.110, USD: 0.826, NOK: 0.110. Hover over the text in red in order to see figures in local currency (desktop version only). Note: Q-o-Q rental growth is based on rental changes in local currency.
Prime Rent represents the top open-market rent that could be expected for a notional unit of the highest quality and specification in the best location in a market, as at the survey date.
The Prime Rent reflects an occupational lease that is standard for the local market. It is a face rent that does not reflect the financial impact of tenant incentives, and excludes service charges and local taxes. Stockholm is the only city where it is market practice to quote the rent as Prime Effective Rent, therefore the rent is including incentives (i.e. rent free periods as well as relocation costs, tenant fittings, etc.). The Prime Rent represents Jones Lang LaSalle’s market view and is based on an analysis/review of actual transactions for prime office space, excluding any unrepresentative deals. Where an insufficient number of deals have been made for prime office space, an assessment of rental value is provided by reference to transactions generally in that market adjusted accordingly to equate to prime.
Represents the best (i.e. lowest) “rack-rented” yield estimated to be achievable for a notional property of the highest quality and specification in the best location in a market, as at the survey date. The property should be let at the prevailing market rent to a first class tenant with an occupational lease that is standard for the local market. The prime initial net yield is quoted, i.e., the initial net income at the date of purchase, expressed as a percentage of the total purchase price, which includes acquisition costs and transfer taxes.The Prime Yield represents Jones Lang LaSalle’s “market view”, based on a combination of market evidence where available and a survey of expert opinion.
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