For a second quarter in a row, no markets reported negative rental growth Q/Q. Prime yields continued to edge out, though by a smaller degree that in 2023. Tentative signs that investor sentiment is shifting to the positive, although any recovery remains fragile with policy rates remaining on hold.
Office
Prime office rental growth continued to improve with prime rents across Europe up 1.8% Q/Q pushing annual growth to 5.8%. The sixth consecutive quarter that annual growth has been above 5% p.a. Growth was strongest in the core markets of the UK, France, Germany, Benelux and Nordics. Rental increases were reported in close to half the markets tracked, with over three quarters of markets reporting rents above levels in Q1 2023.
Prime office yields drifted out by a further 8bps to 5.47%, its smallest outward movement since the onset of the recent crisis. Prime office yields are now 160bps above the pre-crisis low of 3.87% two years ago. Germany, France and the UK and Ireland have seen the biggest outward shifts from between 190-209 bps. It is on the periphery of Europe that yields have moved the least.
Retail
Prime high street rents grew by 0.9% (Q/Q) in Q1 2024, the fastest rate of quarterly growth since 2016. A total of eight markets posted growth, the highest number since 2018. Budapest saw the strongest growth at 9.1%. Rental growth remains subdued with only the CEE and Southern Europe witnessing growth above 1% (Q/Q).
Prime yields edged out by just +3bps Q/Q to 4.91%. A majority, 31 out of 37 markets tracked, reported no movement in yields in Q1 2024 and stand 109 bps above pre-pandemic lows.
Logistics
Rental growth across the logistics sector remains positive at +1.4% Q/Q, but continues to slow from a peak of 4.3% in Q3 2022. Rents are 6.7% higher Y/Y – still strongest sector on an annual basis. Benelux and Southern European markets benefitted the strongest quarterly growth at 2.2%, with peripheral markets also posting growth at over 3%.
Prime yields edged just +3bps higher in Q1 2024 to 5.32%, 136bps above their pre-crisis low. The majority of markets saw no movement, including France, Germany and Benelux markets. There were select inward shifts, in a sign that sentiment might be shifting having over-corrected on the downside.
