Commercial property market trends in Europe and the United States: prices, yield rates and prospects
Shaken by the Brexit and a bolstered US dollar, global commercial real estate markets suffered losses in 2016, but market analysts are optimistic that investment volumes will remain healthy.
According to the Q3 2016 Global Market Perspective issued by Jones Land LaSalle (JLL), some €260 billion was invested in commercial property around the world during the first half (H1) of 2016 — a 10% decrease compared to the same period in 2015. This is largely attributable to the declines of two of the world's largest markets: the American market, where dollar investments shrank by 16% as the strength of the currency soared, and the UK market (-28%), where
We have gathered data on several key commercial real estate markets in Europe, as well as that of the United States, to give you a brief overview of the global markets in 2016. Our overview includes:
- the
- the
- the
We have also provided a general outlook for the EU, UK and US markets going forward.
Austria
Investments: Austria’s commercial property market bucked the global trend, experiencing substantial growth in H1 2016. Investors poured some €1.5 billion into the market during the period —
Office space: Office space accounted for 54% of commercial property investments made in Austria during the first half of the year. This level of demand far exceeds the supply in Vienna, where as few as 6% of office facilities are vacant. This supply deficiency has slowed the pace of the country’s office space market; the average yield rate is 4.2% per annum.
Retail property: Austria’s retail property segment fell precipitously in the first quarter (Q1) of 2016, attracting only 1% of Austria’s overall commercial investments, after having accounted for nearly a quarter of the country’s commercial investment market in 2015. The average yield rates in this segment are between 4% and 5% per annum.
Warehouses: Austria’s warehouse segment lacks quality products. Warehouse properties are primarily utilized by their owners; they are not typically rented out. The average warehouse yield rate in Vienna is 6.5%, while that in Graz is 7%.
Residential property: Vienna flat prices grew by 75% between 2008 and 2015. Foreign nationals typically account for 40% of this market segment. Residential property yield rates average
Property type | Rental rate, EUR per sq m per month |
Annual rent dynamics, % |
Price, EUR per sq m |
Annual price dynamics, % |
Yield, % | forecast |
---|---|---|---|---|---|---|
Vienna | ||||||
Office space | 20.8 | −0.6 | 6,087.8 | 13.9 | 4.1 | ↑ |
Street retail | 240.0 | 0.0 | 82,285.7 | 17.1 | 3.5 | ↑ |
Shopping malls | 88.0 | 0.0 | 20,705.9 | 2.9 | 5.1 | ↑ |
Warehouses | 4.8 | 0.0 | 876.9 | 11.5 | 6.5 | ↔ |
Flats ( |
14.4 | −2.0 | 4,928.0 | 8.4 | 3.5 | ↑ |
Graz | ||||||
Office space | 11.3 | 0.0 | 2,076.9 | 9.2 | 6.5 | ↑ |
Street retail | 88.0 | 0.0 | 24,000.0 | 8.0 | 4.4 | ↑ |
Shopping malls | 40.0 | 0.0 | 7,619.0 | 3.2 | 6.3 | ↑ |
Warehouses | 4.0 | 0.0 | 685.7 | 7.1 | 7.0 | ↔ |
Flats ( |
11.3 | −2.8 | 3,055.0 | 3.6 | 4.4 | ↑ |
Czech Republic
Investments: In H1 2016, Czech commercial property investments shrank by 29%, falling to €956M. However, the total volume represented a 39% growth compared to the previous decade.
Office space: Demand exceeds supply and rental rates are declining. In Prague, Class A office space is the most popular. Overall, 14.6% of the country’s office facilities are vacant. The average prime office property yield rate is 5.5% per annum across the country.
Retail property: As with the office space market, demand exceeds supply and rental rates are declining in the retail property segment. The average prime property yield rate is 5.25% per annum across the country.
Warehouses: Vacancy rates have shrunk to
Residential property: Flat prices in the Czech Republic bottomed out in 2013 and have been on the rise ever since. In 2015, they grew by 4.5%. About 40% of the residential properties sold in Prague in 2015 were one-bedroom flats. Residential property in Prague yields 3.7% per annum on average.
Property type | Rental rate, EUR per sq m per month |
Annual rent dynamics, % |
Price, EUR per sq m |
Annual price dynamics, % |
Yield, % | forecast |
---|---|---|---|---|---|---|
Prague | ||||||
Office space | 15.2 | 2.6 | 3,172.2 | 11.5 | 5.8 | ↑ |
Street retail | 160.0 | 8.1 | 45,176.5 | 20.8 | 4.3 | ↑ |
Shopping malls | 56.0 | 0.0 | 12,800.0 | 9.5 | 5.3 | ↑ |
Warehouses | 4.0 | 4.3 | 711.1 | 8.2 | 6.8 | ↔ |
Flats ( |
9.2 | 17.1 | 3,027.0 | 4.5 | 3.7 | ↓ |
Brno | ||||||
Office space | 10.7 | 8.3 | 1,551.5 | 14.9 | 8.3 | ↑ |
Street retail | 70.0 | 0.0 | 10,838.7 | 3.2 | 7.8 | ↑ |
Shopping malls | 45.0 | 2.6 | 6,967.7 | 9.2 | 7.8 | ↑ |
Warehouses | 4.1 | 0.0 | 607.5 | 3.1 | 8.0 | ↔ |
Flats ( |
6.7 | 10.8 | 1,807.0 | 4.5 | 4.4 | ↓ |
France
Investments: In 2015, the volume of investment in French commercial property hit
Office space: Due to a lack of quality offers, demand exceeds supply and rental rates are decreasing. Prime office space yields an average of 3.25% per annum.
Retail property: Few retail properties are built in France; new real estate offers mainly emerge from redevelopment projects. Yields are presently scraping historic lows, with Parisian street retail properties providing yields of about 3% on average per annum.
Warehouses: Investments in this segment are insignificant in France, amounting to as little as 3% of the market’s total investment volume. Demand exceeds supply and rental rates are in decline. On average, warehouses yield about 6% per annum across the country.
Residential property: The French residential property market experiences annual price dynamic shifts ranging from −2% to +2%. In Q1 2016, prices were 8% lower than during the peak period of Q3 2011. Residential property yields about
Property type | Rental rate, EUR per sq m per month |
Annual rent dynamics, % |
Price, EUR per sq m |
Annual price dynamics, % |
Yield, % | forecast |
---|---|---|---|---|---|---|
Paris | ||||||
Office space | 52.7 | 0.4 | 16,853.3 | 10.4 | 3.8 | ↓ |
Street retail | 885.0 | 0.0 | 354,000.0 | 16.7 | 3.0 | ↑ |
Shopping malls | 166.7 | 0.0 | 50,001.0 | 12.5 | 4.0 | ↑ |
Warehouses | 4.6 | 1.9 | 947.6 | 18.6 | 5.8 | ↑ |
Flats ( |
26.2 | −0.8 | 8,543.5 | 0.9 | 3.7 | ↑ |
Lyon | ||||||
Office space | 18.0 | 0.0 | 4,500.0 | 14.6 | 4.8 | ↓ |
Street retail | 175.0 | 4.3 | 52,500.0 | 17.3 | 4.0 | ↑ |
Shopping malls | 126.0 | 15.4 | 43,200.0 | 23.6 | 3.5 | ↑ |
Warehouses | 3.9 | 0.0 | 784.0 | 12.5 | 6.0 | ↑ |
Flats ( |
11.7 | −2.3 | 3,052.2 | 0.4 | 4.6 | ↑ |
Germany
Investments: Germany has Europe’s second largest real estate market, following the United Kingdom. Investors pumped some €17.5 billion into German commercial property in H1 2016, a 4% decrease as compared to H1 2015. About 40% of the country’s commercial property investors are foreign nationals.
Office space: Office space attracted nearly 50% of Germany’s commercial property investment volume in Q1 2016. In Germany’s
Retail property: This segment attracted 20% of Germany’s commercial property investments in Q1 2016. Prime retail space yields are declining across the country, presently hovering around
Warehouses: Warehousing property attracted 10% of the country’s commercial investments in Q1 2016. Due to a shortage of
Residential property: Between 2011 and 2015, German residential property prices increased by 55% on average across Germany. These prices increased by 65% in Munich, and surged nearly
Property type | Rental rate, EUR per sq m per month |
Annual rent dynamics, % |
Price, EUR per sq m |
Annual price dynamics, % |
Yield, % | forecast |
---|---|---|---|---|---|---|
Berlin | ||||||
Office space | 17.8 | 6.7 | 5,340.0 | 20.0 | 4.0 | ↑ |
Street retail | 244.0 | 1.7 | 77,052.6 | 9.7 | 3.8 | ↑ |
Shopping malls | 92.0 | 0.0 | 25,976.5 | 11.8 | 4.3 | ↑ |
Warehouses | 5.8 | 4.5 | 1,200.0 | 13.6 | 5.8 | ↔ |
Flats ( |
10.3 | 1.1 | 3,651.1 | 10.5 | 3.4 | ↑ |
Munich | ||||||
Office space | 26.8 | 0.0 | 8,691.9 | 4.1 | 3.7 | ↑ |
Street retail | 296.0 | 0.0 | 107,636.4 | 6.1 | 3.3 | ↑ |
Shopping malls | 126.7 | 0.0 | 38,984.6 | 9.0 | 3.9 | ↑ |
Warehouses | 7.0 | 7.7 | 1,555.6 | 19.7 | 5.4 | ↔ |
Flats ( |
17.2 | 2.2 | 7,353.0 | 8.9 | 2.8 | ↑ |
Spain
Investments: In 2015, Spanish commercial property investments reached
Office space: This segment attracted 43% of Spain’s 2015 commercial property investments. Rental demand in Madrid and Barcelona reached their highest points since 2007, before the global financial crisis hit. However, the vacancy rates in both cities remain high: in Madrid, 15.9% of office space is vacant; in Barcelona, that figure is 14%. The yield rates in Madrid and Barcelona average 4.3% and 4.5% per annum, respectively.
Retail property: In 2015, Spanish shopping centres and complexes attracted €2.65 billion in investments — a decade high. Street retail property yields average about 4% per annum, while retail complexes average 5% per annum.
Warehouses: Demand for warehouse space in Madrid and Barcelona exceed supply, and the number of vacant properties is shrinking rapidly. The yield rate in this segment is about 7% on average per annum.
Residential property: Between 2007, when the Spanish market reached its peak, and 2015 — the lowest
Property type | Rental rate, EUR per sq m per month |
Annual rent dynamics, % |
Price, EUR per sq m |
Annual price dynamics, % |
Yield, % | forecast |
---|---|---|---|---|---|---|
Madrid | ||||||
Office space | 16.7 | 3.2 | 4,705.9 | 19.0 | 4.3 | ↑ |
Street retail | 204.0 | 4.1 | 65,280.0 | 18.0 | 3.8 | ↑ |
Shopping malls | 35.3 | 0.4 | 8,479.2 | 0.4 | 5.0 | ↑ |
Warehouses | 4.9 | 3.5 | 861.3 | 5.8 | 6.9 | ↓ |
Flats ( |
11.8 | 9.6 | 2,751.0 | 1.7 | 5.1 | ↑ |
Barcelona | ||||||
Office space | 13.3 | 13.9 | 3,555.6 | 31.6 | 4.5 | ↑ |
Street retail | 220.0 | 1.9 | 70,400.0 | 15.5 | 3.8 | ↑ |
Shopping malls | 36.8 | 0.0 | 8,832.0 | 0.0 | 5.0 | ↑ |
Warehouses | 4.9 | 3.5 | 861.3 | 9.5 | 6.9 | ↓ |
Flats ( |
13.9 | 17.6 | 3,518.0 | 5.4 | 4.7 | ↑ |
United Kingdom
Investments: The United Kingdom boasts Europe’s largest real estate market. In 2015, investors spent €73 billion on commercial property in the country, with Greater London accounting for nearly half of that. About 43% of UK commercial property buyers are foreign citizens, with most coming from the United States. According to JLL, direct commercial real estate investments in the UK fell by 28% in H1 2016 compared to the same period in 2015.
Office space: Office space attracted 42% of the UK’s commercial property investments in Q1 2016. Rental rates are growing while yields were declining. Prime office space yields 3.6% per annum on average in London.
Retail property: This segment attracted 14% of the UK’s commercial property investments in Q1 2016. Prime retail space yields were declining, reaching 3.4% per annum on average in London.
Warehouses: Warehouses attracted 12% of the UK’s commercial property investments in Q1 2016. The country's online retail volume continues to soar, favouring the segment's development. Warehouses in London have an average yield rate of 4.8% per annum.
Residential property: Between 2007 and 2015, residential property rates in London surged by 50%. Across the UK as a whole, that growth figure stood at 7%. Flats in the UK's capital yield 2.4% on average per annum.
Property type | Rental rate, EUR per sq m per month |
Annual rent dynamics, % |
Price, EUR per sq m |
Annual price dynamics, % |
Yield, % | forecast |
---|---|---|---|---|---|---|
London | ||||||
Office space | 100.0 | 9.5 | 33,333.3 | 17.1 | 3.6 | ↔ |
Street retail | 500.0 | 7.7 | 176,470.6 | 15.6 | 3.4 | ↑ |
Shopping malls | 415.0 | −5.0 | 124,500.0 | 0.9 | 4.0 | ↑ |
Warehouses | 16.3 | 0.0 | 4,126.3 | 5.3 | 4.8 | ↑ |
Flats ( |
25.0 | 6.2 | 12,574.0 | 8.2 | 2.4 | ↑ |
Manchester | ||||||
Office space | 39.2 | 1.6 | 9,400.0 | 1.6 | 5.0 | ↔ |
Street retail | 135.0 | 5.8 | 38,117.6 | 18.2 | 4.3 | ↑ |
Shopping malls | 175.0 | 1.5 | 44,210.5 | 6.8 | 4.8 | ↑ |
Warehouses | 7.3 | 4.3 | 1,581.8 | 4.3 | 5.5 | ↑ |
Flats ( |
12.4 | n/a | 3,402.0 | 3.5 | 4.4 | ↑ |
United States
Investments: The United States is home to the world’s largest commercial property market. According to JLL, investments in US commercial property increased by about
Office space: Office vacancy rates are shrinking in the United States. Rental rates are increasing and yield rates are decreasing throughout most of the country. On average, office facilities yield 4.4% per annum.
Retail property: In Miami, New York and San Francisco
Warehouses: According to a PwC survey, warehouses constituted the most promising segment of the US commercial real estate market in 2016. Facility deterioration is a key risk in this area, as half of the United States’ warehouse facilities were built in the 1980’s or earlier. The vacancy rate in this segment is shrinking. Meanwhile, rental rates are rising and yields are falling. On average, warehouses in the United States yield 5% per annum.
Residential property: Apartment buildings constitute the strongest and most stable commercial property market segment in the United States. This segment attracted 30% of all 2015 commercial property investments in the country. As of 2016, prices in the United States were 5% shy of their 2007 peak; however, this figure varies significantly. For example, in Miami prices are 22% lower than in 2007. Meanwhile, New York’s residential property market is on the rise, with prices 13% higher on average than in 2007. The average residential property yield rate in the United States is 4.4% per annum.
Property type | Rental rate, EUR per sq m per month |
Annual rent dynamics, % |
Price, EUR per sq m |
Annual price dynamics, % |
Yield, % | forecast |
---|---|---|---|---|---|---|
New York | ||||||
Office space | 50.2 | 5.6 | 14,178.8 | 11.8 | 4.3 | ↑ |
Street retail | 450.0 | 4.7 | 154,285.7 | 12.2 | 3.5 | ↑ |
Shopping malls | 51.0 | 5.4 | 10,633.0 | 10.0 | 5.8 | ↑ |
Warehouses | 4.8 | 6.4 | 1,049.8 | 13.6 | 5.5 | ↑ |
Flats ( |
40.9 | 3.9 | 14,009.2 | 7.0 | 3.5 | ↑ |
Miami | ||||||
Office space | 13.0 | 7.0 | 3,473.3 | 18.9 | 4.5 | ↑ |
Street retail | 200.0 | 1.8 | 61,935.5 | 18.2 | 3.9 | ↔ |
Shopping malls | 68.2 | 4.4 | 14,237.2 | 8.9 | 5.8 | ↔ |
Warehouses | 6.2 | 0.4 | 1,273.9 | 4.7 | 5.9 | ↑ |
Flats ( |
16.1 | 7.2 | 2,907.0 | 5.7 | 4.0 | ↑ |
Predictions for the EU, UK and US commercial property markets
Cushman & Wakefield anticipates a 10% total increase in the volume of EU (excluding the UK) commercial property investments in 2016 as compared to 2015. Meanwhile, they expect UK commercial investment volumes to decrease by 25% during the same period. Any such decline will likely be attributable to investor confusion surrounding the Brexit.
JLL anticipates that US investment activities will decline by
Yield rates in mature markets have exhibited a general tendency toward declining in recent years due to high demand for prime property and growing prices. Experts anticipate that this trend will continue through 2016 and into 2017. Meanwhile, analysts expect rental rates and property prices to grow, even in the United Kingdom. Standard & Poor’s anticipates that British property prices will increase by 5% in 2016, but will then fall by about 2% in 2017.
United States | United Kingdom | European Union | |
---|---|---|---|
Annual investment dynamics, % |
−25 | +10 | |
Yield rates | To decline or remain at the same level | To decline in the prime property segment; to increase in the |
To decline in the prime property segment; to increase or remain at the same level in the |
Rental rates | To increase | To remain at the same level in the prime property segment | To remain at the same level or increase |
Tenant demand | To remain at the same level or increase | To remain at the same level or decline | To remain at the same level or increase |
Property prices | ↑ | ↑ | ↑ |
Yulia Kozhevnikova, Tranio
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