European Real Estate Market H1 2 18
The European Union MACROECONOMIC OVERVIEW 18. Contribution of some Member States to the EU-28 GDP (million euro) Globally, economic growth remains solid, but less synchronized across countries and regions. Activity slowed somewhat in the advanced economies, while emerging markets recorded both growth (India and China) and downturn (South Africa and Brazil). The Gross Domestic Product (GDP) growth of the Euro Area (EA) remains solid, but moved at a slower pace compared to the past year. According to the European Commission, the GDP breakdown for 218-Q1 shows that the expansion in the EA was mainly supported by private consumption and investment, whereas the contribution of public consumption was neutral. At the same time, net exports became a drag (-.2 pps.), following two consecutive quarters of positive contributions to GDP growth. 16. 14. 12. 1. 8. 6. 4. 2. 215 216 217 218* 219* Other European Union (28) Germany France Italy United Kingdom * forecast Source: Duff & Phelps REAG R&D on European Commission (EC) data 2,5% 2,% 1,5% Some Member States GDP var % yoy The instability recorded in some emerging economies pushed investors back to the safe-haven of sovereign bonds. Geopolitical tensions/protectionist polices are the main threat for EU economies. Benchmark yields for some EA Member States fell back in the past few months amid weaker-than-expected economic data. 1,%.5%,% * forecast 215 216 217 Germany France Italy UK 218* Source: Duff & Phelps REAG R&D on European Commission (EC) data 219* 2
EU 28 Countries Real GDP growth rate (217) GDP per capita (US$) to 1.9 1.9 to 2.7 2.7 to 3.6 3.6 to 4.5 4.5 to 7.2 data not available Source: Duff & Phelps REAG R&D on European Commission data 3
European Office Market INVESTMENTS VOLUME In the first half of 218 (H1 218), the volume of investments in the office sector increased by 6.9% on an annual basis. Office still remains the most attractive sector for investors, totalling 44% of the overall investments. 3 25 2 15 1 5 Investments ( billion) In recent years, office demand in Central and Eastern Europe (CEE) rapidly increased, particularly in Russia and Poland. KEY DRIVERS Smart working and office wellness Technology and flexibility Building efficiency and quality Build-to-suit Shorter leases Emerging CEE markets V A C A N C Y On a yearly basis, vacancy rates decreased by.6% and lined up at 7.1% across European markets. 213 214 215 216 217 H1 218 Office Other Vacancy rate bps 14% 12% 1% 8% 6% 4% 2% Vacancy Rates -1-2 -2-2 -3-3 -5-5 -4-6 -6-6 -7-7 -9-9 -14-13 -15-2 -22-26 -27-27 -3 5-5 -1-15 -2-25 -3 A compression of vacancy rates has been registered in all the analysed cities due to the slow-down of new developments. registered the lowest vacancy rate in Europe (2%), and further decreases are expected. % Amsterdam Dusseldorf Hamburg Luxembourg St. Petersbourg Vienna Zurich Vacancy rate H1 218 (%) Variance bps YoY -35 4
European Office Market PRIME RENTS AND YIELDS In H1 218, average prime rents remained stable compared to 217. On an annual basis, average prime yield registered a compression, reaching 4.1%. Compared to 213 rents grew by 5.7%, while yields saw a compression of 1%. For the second half of the year, the trend of yield compression is expected to continue and rents are expected to grow. 12 11 1 9 8 7 6 5 European rents and yields trend (21=base 1) 21 211 212 213 214 215 216 217 H1 218 Prime rents Gross prime yields MARKET HIGHLIGHTS : Brexit uncertainties did not stop foreign investors, who accounted for 75% of the investments volume, in particular from China and South Korea. : even though investments registered a slight decrease compared to H1 217, the growing number of deals shows the dynamism and attractiveness of the market. : the city registered good performance in the first half of the year and continues to attract foreign investors. In H1 218, observed the highest number of deals in recent years. In the H1 218, investments in Germany increased by 9% compared to H1 217. The 5 five main cities (, Dusseldorf, Hamburg, and ) contributed 7% of German office volume. Despite the volatile Russian economy, investments and take up in the Russian office market are increasing, as of rental rates. Office investments represents 5% of the total investments in Russian market. 1,6 1,4 1,2 1, 8 6 4 2 Office market Amsterdam Dusseldorf Glasgow Hamburg Helsinki Luxembourg Zurich Prime rent H1 217 Prime rent H1 218 Gross Yield H1 218 (%) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % 5
European Office Market Prime rents 5 km Gross prime yields (%) 3 mi d-maps.com 66 Glasgow 365 5.4% 3.9% 426 4.9% Edinburgh 419 5.4% 415 4.8% 1.385 3.8% 815 3.% 49 3.7% 69 3.5% Hamburg 265 368 3.8% Amsterdam 3.1% 43 3.6% Zurich 72 2.6% Dusseldorf 373 3.5% 315 4.5% Luxembourg 59 4.4% 4 3.1% 48 3.1% 56 4.% 41 3.1% 265 4.7% Wien 41 3.8% 255 5.3% Helsinki 44 3.6% 67 9.4% 255 4.8% 365 3.3% 295 4.1% 41 4.7% Source: Duff & Phelps REAG R&D on various data 6
European Retail Market INVESTMENTS VOLUME In H1 218, the volume of investments in the retail sector remained stable compared to the same period of 217. Retail investment represents 22% of total European investments. 3 25 2 Investments ( billion) Compared to 217, weaker growth in the Western markets is expected this year. As observed in the last few years, the demand for retail spaces remained strong in the Central and Eastern Europe area (CEE), in particular Poland and the Czech Republic. 15 1 5 213 214 215 216 217 H1 218 Retail Other For the remainder of the year, the outlook remains positive due to high consumer confidence and the expected growth of wages. yields 6.% 5.% European Average prime retail rents and yields rents 25 2 KEY DRIVERS Sharing economy Growth of tourism in prime locations Adaptation to consumer preferences E-commerce Internet of Things 4.% 3.% 2.% 1.%.% 213 214 High Street yields High Street rents 215 216 217 Shopping centre yields Shopping centre rents H1 218 15 1 5 Reduction of physical spaces V A C A N C Y Despite the slow down in investments, also due to the lack of spaces, the vacancy rate continues to drop. 7
European Retail Market PRIME RENTS AND YIELDS In H1 218, average prime rents stabilized both for High Streets and shopping centres. Among European countries, in H1 218, average net prime yields decreased by 1 bps in the High Street, reaching 4.%, while shopping centres remained stable. A compression of yields is expected for the second half of the year. MARKET HIGHLIGHTS: UK: Brexit continues to influence investors. Demand remains focused on prime locations, where the possibility of rental growth is limited; but good performances are expected in regional markets for next year. /smq/year 25, 2, 15, 1, 5, Amsterdam Bucharest Dusseldorf Prime rent H1 217 Edinburgh High Street Retail market Glasgow Hamburg Helsinki Prime rent H1 218 Vienna Zurich Net prime yield (%) H1 218 14% 12% 1% 8% 6% 4% 2% % Italy: in H1 218, the opening of top level shopping centres continued, absorbing more than half the investments in the retail sector. Germany: the refurbishment of retail shops and shopping centres will allow more attractive shopping experiences. France: luxury units in registered positive rental trends and investments. However, restrictive planning laws could slow down the future supply, especially for medium and large units. Russia: the scarcity of new developments will lead to a downturn in vacancy rate. Retailers are searching for unique formats attracting new customers. 12% 1% 8% 6% 4% 2% % Yield Shopping Centre France Norway Germany Austria Belgium Czech republic Spain Sweden United Kingdom Italy Finland Poland Portugal Ireland Slovakia Hungary Romania Bulgaria Greece Russia Net prime yield H1 217 (%) Net prime yield H1 218 (%) 8
European Retail Market High Street 5 prime kmrents High Street 3 net mi prime yields (%) d-maps.com 1,5 4.7% 3,27 3.2% 5,6 Glasgow 2,335 4.2% 3.5% 1,26 4.8% 3,36 3.3% Edinburgh 1,76 4.4% 2,546 4.% 17,46 2.4% 19,275 2.6% Amsterdam 3, 2.9% 1,71 3.2% Zurich 8,5 3.2% 2,562 3.9% 3,66 3.4% 4,44 2.9% 11, 2.9% 4,65 3.3% 1, 3.1% 1,72 3.8% Hamburg 3,168 3,34 3.% 3.% 2,544 3.6% Vienna 4, 2.7% 1,68 5.4% Bratislava 516 7.3% Helsinki 1,62 4.1% Bucharest 564 7.5% 3,355 11.3% 9
European Logistics Market INVESTMENTS VOLUME After an extraordinary 217, volume decreased in H1 218 by 8% compared to the same period of 217. Nevertheless, the logistic sector is still very attractive for investors: about 14 billion euro has been transacted in H1 218. The level of transacted volume remains above average for the last five years. Logistics assets are considered to be a means for international investors to extend their portfolios. Investments ( billion) 3 25 2 15 1 5 213 214 215 216 217 H1 218 Logistics Other KEY DRIVERS: E-commerce warehouse spaces Greenfield vs Brownfield Build-to-suit developments Proximity to key markets International trading 3PL providers V A C A N C Y Across the main European markets, vacancy rates continue to decline and in the first half of 218 they recorded average values lower than 5%. This reduction is due to the strong take- up activity. This trend is expected to continue for the second half of the year. Sweden 4% Norway 5% Italy 3% Other 12% France 1% Investments by country Netherlands 14% UK 31% Germany 21% 1
European Logistics Market PRIME RENTS AND YIELDS In H1 218, rents increased by 1.3% across Europe, on an annual basis. and Vienna registered the highest rental growth, on an annual basis. Average net prime yields decreased by 2 bps and a further compression is expected for the main markets. Yields are at their lowest level, due to the slow down of investments. MARKET HIGHLIGHTS: Italy: investors are looking for alternative and innovative locations. The closing of some new developments in the second half of the year could lead to a compression of yields. Germany: the available land close to the main cities is extremely limited, so investors are looking for brownfields along the most important motorways. The high demand could lead to a yield contraction. France: the take-up decline in highlighted secondary markets, where obsolete warehouses came back on the market. Spain: the lack of product and the strong take-up activity continue to push up the rental fees and reduce the vacancy rates. Russia: demand for logistics assets is low, except for the region, where about 8, sqm of warehouse spaces are expected to be built in 218. /smq/year 2 18 16 14 12 1 8 6 4 2 % Amsterdam Dusseldorf Edinburgh 13 12 11 1 9 8 7 6 5 Prime rent H1 217 Glasgow Hamburg Helsinki Logistics market Luxembourg Prime rent H1 218 European rents and yields trend (21=base 1) Vienna St. Petersburg Zurich Net prime yield (%) H1 218 21 211 212 213 214 215 216 217 H1 218 Prime rents Net prime yields 14% 12% 1% 8% 6% 4% 2% 11
European Logistics Market Prime rents 5 km Net prime yields (%) 3 mi d-maps.com 1 Glasgow 78 5.5% 5.4% 82 4.5% Edinburgh 86 5.1% 78 4.7% 183 4.% 57 5.% 54 5.9% 121 5.% Amsterdam Hamburg 95 69 5.% 4.5% Dusseldorf 65 4.6% 75 4.5% 83 4.5% 54 5.7% 78 6.% 62 4.5% 95 5.2% 51 6.% Vienna 64 5.9% 5 6.3% Helsinki 116 5.8% St.Petersburg 51 11.8% 5 11.3% 45 6.6% 66 5.7% 8 5.7% 55 5.9% 12
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