Prime yields have hit new lows in many markets, pushed down by competition for the best assets and the potential for further yield compression allowed by low bond yields and interest rates, according to a new research report published by broker Savills.
Prime yields have hit new lows in many markets, pushed down by competition for the best assets and the potential for further yield compression allowed by low bond yields and interest rates, according to a new research report published by broker Savills.
The average prime CBD office yield was 4.83% in May 2015, down 7 bps from Q1 2015.
'The weight of money is increasing with new investors entering the European arena, which is leading to further yield compression across markets,' said Marcus Lemli, head of European investment at Savills. 'As investors' focus is broadening, activity levels are rising in core markets and peripheral markets as well as in higher yielding segments.'
The average prime achievable regional shopping centre yield moved in from 5.34% in Q1 to 5.25% in May. The shopping centre market has benefited, and should continue to benefit, from the competitive conditions in offices and potential sellers could benefit from strong buyer interest. The logistics sector, which is traditionally the highest yielding sector, has also seen average prime yields move in from 7.1% in Q1 2015 to 6.9% in May.
According to data from RCA, the second quarter of the year is on track to match or even exceed Q1 2015 with €29.7 bn of transactions to date and another €16.3 bn in the pipeline. Savills predicts total investment for 2015 will exceed last year’s volume of €210 bn.
The share of international investors continues to rise in Europe, with US, Canadian and Middle Eastern investors currently the most active, accounting for 45%. UK, French, German and Swedish investors also continue to look for opportunities in Europe.
London, Paris, and the big German cities of Berlin, Munich and Frankfurt are still amongst the top destinations for investors, but the peripheral markets of Dublin, Madrid and Milan also have an established place in the top investment destinations, the report concluded.
