OVERVIEW As we move towards the busy 4th quarter trading period, this report highlights some of the major trends seen in European commercial property markets so far in 2016. The big event in the political sphere was undoubtedly the surprise result in the UK referendum but excluding the UK, the demand for real estate in Europe has remained strong. Of the 35 largest non-UK office markets in Europe, prime office yields have continued to fall in 22 of them so far in 2016 with yields remaining stable. The pattern of office leasing across the European markets continues to reflect the economic situation: positive but slow growth with some marked differences from place to place reflecting offsets in the timing of cycles; all tempered with a degree of caution from the lead-up to, and result of, the EU referendum in the UK. The increased attraction of prime property is linked to the policy adopted by the ECB over the past two years. We now have negative short-term policy rates and very low long-term government bond yields. This has pushed investors towards alternative “near bond-like” assets which offer some characteristics of fixed income and security. Prime property goes some way to fitting the description and steadily rising rents and falling vacancy have helped to make the case. The majority of retail markets across Europe have seen positive retail sales volume growth so far in 2016 and the EU average growth rate has been a healthy 3.2% . The industrial & logistics markets have also performed well so far in 2016 even in the UK, where logistics occupier demand was surprisingly strong amidst a general referendum-linked slowdown. Although uncertainty around the impact of the referendum will weigh on parts of the UK market, continuing economic growth and an ongoing very low interest rate environment will continue to drive real occupier and investor demand over the rest of 2016 and into 2017 despite the plethora of elections and referenda still to come.
•BOTH PRIME HIGH STREET AND SHOPPING CENTRES SEE POSITIVE BUT SLOWING RENTAL GROWTH IN Q3 The CBRE Prime High Street rent index grew by 1.0% q-o-q and 7.0% y-o-y. There has been a consistent slowing of the rental index since Q2 2015. The EMEA Shopping Centre index, has returned to growth in Q3, as the index grew 0.2% q-o-q and 2.1% y-o-y up on the quarterly decline in Q2 but slightly slower than Q2’s year on year growth rate of 2.3%. •CONSUMER CONFIDENCE IN EUROPE SLUMPED AFTER BREXIT, BUT RESPONDED WELL IN THE LAST MONTH OF THE QUARTER Consumer confidence in the European Union dropped significantly after the United Kingdom’s E.U referendum, with the consumer confidence index falling 1.9 pts in July, however there was a significant improvement in confidence in the last month of the quarter but the index still remains below Q2 figures. •EUROPEAN RETAIL INVESTMENT TOTALLED €13 BILLION IN Q3 Germany has overtaken the UK as the largest target market for European retail investment in Q3. Investors are continuing to demand core retail assets despite the meagre returns on offer in prime retail markets, however these asset represent a decent premium relative to the bond market.
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CBRE’s EMEA Investment Guide 2016 is the definitive introduction to investing in commercial property in Europe, Middle East, and Africa and explores the investment trends and the terms of buying, selling, and leasing commercial property across 36 countries.