- Number of markets with yield compression doubles to 24 – including eleven logistics markets
- Office markets record the strongest rental growth on a quarterly and annual basis
- Capital values for office and logistics spaces in Frankfurt, Hamburg, and Munich slightly increase in Q4 2024
According to the "DNA of Real Estate" report by Cushman & Wakefield, one of the world's largest real estate consulting firms, a growing number of European commercial real estate markets (office, inner-city retail, logistics) experienced yield compression in Q4 2024 compared to the previous quarter. With 24 markets, the number at the end of 2024 was twice as high as in Q3 2024, a clear signal that Europe's top investment markets are on the path to recovery.
At a pan-European level, office and logistics spaces reported slight yield compression of 3 basis points to 5.47% and 5.27%, respectively, in Q4 2024. Retail yields in prime locations fell by 1 basis point to 4.86%. Year-on-year (y-o-y), logistics and retail in prime locations saw a decline in yields (by 2 basis points), while office markets overall recorded an increase in yields of 8 basis points.
European logistics markets, in particular, showed yield compression: with eleven, nearly half of the markets reporting compression of prime yields on a quarterly basis (q-o-q) were in the industrial and logistics sector. Eight office markets and five retail markets also showed declining yields.
Germany: Little Movement in Yields
In Germany, prime yields remained stable in Q4 2024 compared to the previous quarter. Except for an increase in yields for prime office properties in Q2 2024, prime yields for retail properties in prime locations and logistics properties have been stable since the beginning of 2024.
At the end of Q4 2024, the average prime office yield for core properties in the German top-5 markets (Berlin, Düsseldorf, Frankfurt, Hamburg, Munich) considered in the "DNA of Real Estate" report was 4.86%. Compared to Q4 2023, the average prime yield increased by 13 basis points. Munich and Berlin currently have the lowest yields at 4.60% and 4.80%, respectively, while Düsseldorf has the highest prime office yields at 5.10%.
The average prime yield for inner-city retail properties in the German top-5 markets remained unchanged at 4.39% at the end of Q4 2024, both compared to the previous quarter and the end of 2023.
The average prime yield for core logistics properties also remained unchanged at 4.50% in Q4 2024. Compared to the previous year, the prime yield remained unchanged.
"We expect that yield-oriented institutional investors will become more active again and that competition for attractive core products will increasingly intensify," said Tina Reuter, CEO Germany at Cushman & Wakefield. Tina Reuter continued: "The investment focus is increasingly shifting towards top office locations, as the supply improves with modern and attractive completions with high pre-letting rates."
For 2025, Cushman & Wakefield expects slightly declining prime yields for core office properties in inner-city locations. The yield gap between central and peripheral locations will therefore continue to widen over the course of the year.
Strong Performance in Spain Supports Yield Compression in Southern and Central Europe
Southern and central European markets recorded the most significant yield compression, with minus 10 basis points, mainly driven by strong performance in Spain. Logistics and retail in prime locations in Southern Europe recorded minus 8 and minus 5 basis points, respectively. This is due to robust economic fundamentals, which, combined with an optimistic approach by companies, support improved price levels in Spain and Portugal.
Central European markets experienced moderate cross-sector compression in office (-5 bp), prime retail (-5 bp), and logistics (-4 bp). In Scandinavia, Sweden and Norway recorded compression in the office sector (-6 bp).
Nigel Almond, Head of Data Analytics EMEA Research at Cushman & Wakefield: "The significant reduction in prime yields in a growing number of European commercial real estate markets in Q4 2024 underscores the robust demand and investor confidence in the sector. The logistics sector continues to lead the way, reflecting the significant role of this sector in the modern economy. The strong rental growth in office spaces underscores the continued demand for high-quality properties in prime locations. This trend is particularly evident in Southern and Central Europe. We expect the positive momentum to continue in 2025, further strengthening the resilience and attractiveness of the European commercial real estate market."
Rental and Capital Value Development Mostly Positive — Three German Cities Included
In all sectors, at least 90% of all European office, retail, and logistics markets reported stable or rising rents on a quarterly and annual basis in Q4 2024. Rental growth in Europe remained robust overall, although some declining rents were still observed. Office spaces recorded annual rental growth of over 5% in Q4 – the ninth consecutive quarter – (+5.4% in Q4 after +5.2% in Q3). The UK (+7.9%), Benelux (+8.2%), Southern Europe (+5.5%), and Germany (+5.3%) recorded the strongest growth year-on-year.
Apart from a stability phase in the first year of the pandemic, prime rents in Germany have continuously increased over the past ten years, including in 2024. Across the top five markets, prime rents saw an average increase of 5.3%., most significantly in Munich (12.8% or €6/m²) to €53/m². In Düsseldorf, the increase was €3.50 (8.7%) over the year.
Prime retail rents in prime locations recorded an annual increase of 3.5% in Q4, more than double the increase of the previous year (1.5%).
Strong rental growth and slight yield compression towards the end of 2024 resulted in capital values in Europe ending the year 4.4% above the 2023 level, supported by an increase of almost 8% in Southern Europe. Strong rental growth ensured that office property capital values grew the most in 2024, ahead of prime retail (3.9%) and logistics (3.8%), which benefited from yield compression with lower rental growth.
In Germany, rising capital values were observed in three of the top five markets in the final quarter of 2024, based on increasing prime rents with stable yields: in Frankfurt (+1.0%), Hamburg (+1.4%), and Munich (+1.9%).
Martin Belik, Head of Valuation & Advisory Germany at Cushman & Wakefield, commented: "Currently, we expect a stabilization of capital values in Germany. The value corrections for office properties in central locations are largely complete nationwide. In many locations, capital values are already increasing again, often due to the rise in prime rents."
Over the course of the year, Cushman & Wakefield expect that attractive investment opportunities will also arise in peripheral locations for risk-tolerant investors. For high-quality properties in good to very good micro-locations, strong tenant demand is also expected in the submarkets.
