Commercial property market trends in Europe and the United States: prices, yield rates and prospects

The United States is the largest market in the world by volume of real estate investments

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 Brexit-related uncertainty prevailed.

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:

We have also provided a general outlook for the EU, UK and US markets going forward.

Austria

Austria’s commercial property market experienced significant growth during the first half of 2016

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 — an 8.5-fold increase compared to H1 2015. This spending surge is attributable to the fact that several major transactions — including the sale of the IZD tower for €270M — closed in Austria during the first six months of the year. German investors dominate the Austrian market.

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 3.5-4% per annum on average.

Price dynamics in the Austrian commercial property market, H1 2016 Sources: Cushman & Wakefield, Immopreise.at, Knight Frank, Numbeo

Property type Rental
rate,
EUR per sq m
per month
Annual
rent
dynamics, %
Price,
EUR per sq m
Annual
price
dynamics, %
Yield, % 2016-2017
forecast
Vienna
Office space 020.8 −0.6 06,087.8 13.9 4.1
Street retail 240.0 +0.0 82,285.7 17.1 3.5
Shopping malls 088.0 +0.0 20,705.9 02.9 5.1
Warehouses 004.8 +0.0 00,876.9 11.5 6.5
Flats (long-term rentals) 014.4 −2.0 04,928.0 08.4 3.5
Graz
Office space 011.3 +0.0 02,076.9 09.2 6.5
Street retail 088.0 +0.0 24,000.0 08.0 4.4
Shopping malls 040.0 +0.0 07,619.0 03.2 6.3
Warehouses 004.0 +0.0 00,685.7 07.1 7.0
Flats (long-term rentals) 011.3 −2.8 03,055.0 03.6 4.4

Czech Republic

When it comes to office space and retail property in the Czech Republic, demand far exceeds supply

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 a five-year low (5%), and high demand has fuelled speculative construction. The average yield rate for high-quality warehousing property is 6.5% per annum across the country.

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.

Price dynamics in the Czech commercial property market, H1 2016 Sources: Cushman & Wakefield, Knight Frank, Numbeo, Realitymix.cz

Property type Rental
rate,
EUR per sq m
per month
Annual
rent
dynamics, %
Price,
EUR per sq m
Annual
price
dynamics, %
Yield, % 2016-2017
forecast
Prague
Office space 015.2 02.6 03,172.2 11.5 5.8
Street retail 160.0 08.1 45,176.5 20.8 4.3
Shopping malls 056.0 00.0 12,800.0 09.5 5.3
Warehouses 004.0 04.3 00,711.1 08.2 6.8
Flats (long-term rentals) 009.2 17.1 03,027.0 04.5 3.7
Brno
Office space 010.7 08.3 01,551.5 14.9 8.3
Street retail 070.0 00.0 10,838.7 03.2 7.8
Shopping malls 045.0 02.6 06,967.7 09.2 7.8
Warehouses 004.1 00.0 00,607.5 03.1 8.0
Flats (long-term rentals) 006.7 10.8 01,807.0 04.5 4.4

France

Few retail properties are built in France; new real estate offers mainly emerge from redevelopment projects

Investments: In 2015, the volume of investment in French commercial property hit an eight-year high of €26 billion. In H1 2016, about €9.1 billion was invested in commercial property in France, 16% more than during the same period of 2015. Increased investment volumes are attributable to three transactions of over €500M each that were closed within a short period. Foreign investors account for about one-third of the investors on the French market.

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 3-4%.

Price dynamics in the French commercial property market, H1 2016 Sources: CBRE, Cushman & Wakefield, Knight Frank, Lavieimmo.com, Meilleursagents.com

Property type Rental
rate,
EUR per sq m
per month
Annual
rent
dynamics, %
Price,
EUR per sq m
Annual
price
dynamics, %
Yield, % 2016-2017
forecast
Paris
Office space 052.7 +0.4 016,853.3 10.4 3.8
Street retail 885.0 +0.0 354,000.0 16.7 3.0
Shopping malls 166.7 +0.0 050,001.0 12.5 4.0
Warehouses 004.6 +1.9 000,947.6 18.6 5.8
Flats (long-term rentals) 026.2 −0.8 008,543.5 00.9 3.7
Lyon
Office space 018.0 +0.0 004,500.0 14.6 4.8
Street retail 175.0 +4.3 052,500.0 17.3 4.0
Shopping malls 126.0 15.4 043,200.0 23.6 3.5
Warehouses 003.9 +0.0 000,784.0 12.5 6.0
Flats (long-term rentals) 011.7 −2.3 003,052.2 00.4 4.6

Germany

Germany boasts the second largest real estate market in Europe

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 so-called Big 7 cities — Berlin, Munich, Stuttgart, Frankfurt, Dusseldorf, Cologne and Hamburg — demand for office space is outpacing supply. Rental rates in these cities are rising while yields are shrinking. High-quality office space yields about 4% per annum on average.

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 3-4% per annum on average.

Warehouses: Warehousing property attracted 10% of the country’s commercial investments in Q1 2016. Due to a shortage of high-quality offers and strong demand, yields are shrinking, and are currently in the vicinity of 5-6% per annum on average.

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 two-fold in Berlin. Long-term flat rentals yield about 3% on average.

Price dynamics in the German commercial property market, H1 2016 Sources: Cushman & Wakefield, JLL, Knight Frank, Numbeo, Wohnungsboerse.net

Property type Rental
rate,
EUR per sq m
per month
Annual
rent
dynamics, %
Price,
EUR per sq m
Annual
price
dynamics, %
Yield, % 2016-2017
forecast
Berlin
Office space 017.8 6.7 005,340.0 20.0 4.0
Street retail 244.0 1.7 077,052.6 09.7 3.8
Shopping malls 092.0 0.0 025,976.5 11.8 4.3
Warehouses 005.8 4.5 001,200.0 13.6 5.8
Flats (long-term rentals) 010.3 1.1 003,651.1 10.5 3.4
Munich
Office space 026.8 0.0 008,691.9 04.1 3.7
Street retail 296.0 0.0 107,636.4 06.1 3.3
Shopping malls 126.7 0.0 038,984.6 09.0 3.9
Warehouses 007.0 7.7 001,555.6 19.7 5.4
Flats (long-term rentals) 017.2 2.2 007,353.0 08.9 2.8

Spain

The number of foreign investors snapping up property in Spain increased from 50% in 2015 to 73% in the first half of 2016

Investments: In 2015, Spanish commercial property investments reached a post-crisis peak of €13 billion, a 25% spike since 2014. However, in H1 2016, the segment attracted only €3.4 billion, a 20% decrease as compared to the same period during the previous year. The number of foreign investors in Spain is on the rise: in 2015, the percentage of foreign nationals in the commercial property market was about 50%; by H1 2016 that figure had increased to 73%.

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 post-crisis point — Spain’s residential property prices fell by an average of 43%. The markets of residential property for sale in Barcelona and Madrid have the country’s most significant potential for price growth. Flats in Barcelona and Madrid yield about 5% per annum on average.

Price dynamics in the Spanish commercial property market, H1 2016 Sources: Cushman & Wakefield, Fotocasa, Knight Frank, Numbeo

Property type Rental
rate,
EUR per sq m
per month
Annual
rent
dynamics, %
Price,
EUR per sq m
Annual
price
dynamics, %
Yield, % 2016-2017
forecast
Madrid
Office space 016.7 03.2 04,705.9 19.0 4.3
Street retail 204.0 04.1 65,280.0 18.0 3.8
Shopping malls 035.3 00.4 08,479.2 00.4 5.0
Warehouses 004.9 03.5 00,861.3 05.8 6.9
Flats (long-term rentals) 011.8 09.6 02,751.0 01.7 5.1
Barcelona
Office space 013.3 13.9 03,555.6 31.6 4.5
Street retail 220.0 01.9 70,400.0 15.5 3.8
Shopping malls 036.8 00.0 08,832.0 00.0 5.0
Warehouses 004.9 03.5 00,861.3 09.5 6.9
Flats (long-term rentals) 013.9 17.6 03,518.0 05.4 4.7

United Kingdom

Between 2007 and 2015, residential property rates in London surged by 50%

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.

Price dynamics in the UK commercial property market, H1 2016 Sources: CBRE, Cushman & Wakefield, Home.co.uk, Homelet.co.uk, Numbeo, Zoopla

Property type Rental
rate,
EUR per sq m
per month
Annual
rent
dynamics, %
Price,
EUR per sq m
Annual
price
dynamics, %
Yield, % 2016-2017
forecast
London
Office space 100.0 +9.5 033,333.3 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 00.9 4.0
Warehouses 016.3 +0.0 004,126.3 05.3 4.8
Flats (long-term rentals) 025.0 +6.2 012,574.0 08.2 2.4
Manchester
Office space 039.2 +1.6 009,400.0 01.6 5.0
Street retail 135.0 +5.8 038,117.6 18.2 4.3
Shopping malls 175.0 +1.5 044,210.5 06.8 4.8
Warehouses 007.3 +4.3 001,581.8 04.3 5.5
Flats (long-term rentals) 012.4  n/a 003,402.0 03.5 4.4

United States

Investors can snap up residential property in Miami for 22% less than they could have nine years ago

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 20-25% per annum between 2009 and 2015. In H1 2016, this segment attracted €108 billion in investments, a 16% decline as compared to H1 2015.

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 2-3% of retail facilities are vacant, due primarily to a lack of quality offers. In H1 2016, the vacancy rate was on the rise. The average yield rate was 4.6%.

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.

Price dynamics in the US commercial property market, H1 2016 Sources: CBRE, Cushman & Wakefield, JLL, Numbeo, PwC, Zillow

Property type Rental
rate,
EUR per sq m
per month
Annual
rent
dynamics, %
Price,
EUR per sq m
Annual
price
dynamics, %
Yield, % 2016-2017
forecast
New York
Office space 050.2 5.6 014,178.8 11.8 4.3
Street retail 450.0 4.7 154,285.7 12.2 3.5
Shopping malls 051.0 5.4 010,633.0 10.0 5.8
Warehouses 004.8 6.4 001,049.8 13.6 5.5
Flats (long-term rentals) 040.9 3.9 014,009.2 07.0 3.5
Miami
Office space 013.0 7.0 003,473.3 18.9 4.5
Street retail 200.0 1.8 061,935.5 18.2 3.9
Shopping malls 068.2 4.4 014,237.2 08.9 5.8
Warehouses 006.2 0.4 001,273.9 04.7 5.9
Flats (long-term rentals) 016.1 7.2 002,907.0 05.7 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 10-15% year-on-year in 2016, due to a dearth of promising offers paired with macroeconomic uncertainty.

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.

Forecast for commercial property markets, 2016 Sources: Cushman & Wakefield, JLL, RICS

  United States United Kingdom European Union
Annual investment
dynamics, %
−10–15 −25 +10
Yield rates To decline or remain at the same level To decline in the prime property segment; to increase in the mid-range segment To decline in the prime property segment; to increase or remain at the same level in the mid-range segment.
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