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European property yields rise on risk fears

European real estate investors are demanding lower prices on office property transactions to compensate for what they see as a surge in real estate investment risk, a report showed on Thursday.

The latest European office markets report from property consultant Savills (SVS.L: Quote, Profile, Research) showed average prime office yields had risen by 60 basis points to 5.5 percent in the past year amid fears of falling rents and imminent economic recession.

Yields have risen more than 10 basis points above the average in cities such as London and Amsterdam, which have been hit hard by the credit crisis and banking sector woes. Central Business Districts in Lille, Athens and Oslo are also seeing average offie yields in excess of 5.6 percent.

"Longer decision-making processes, tighter negotiations and more conservative approaches have been reflected in the European office market and we expect further rental and yield adjustments in the main business centres before the end of the year," said Lydia Brissy, a member of Savills European research team.

EUROPEAN MARKETS

Not all European markets are suffering to the same extent, Savills said.

In terms of rents, the report shows that annual rental growth remains positive in most of Europe's key central business districts with Frankfurt, Hamburg, Istanbul, Warsaw and Zurich showing particularly sharp increases.

The office occupancy market in Brussels has performed well so far in 2008, with take up currently standing at 285,000 square metres, some 6.4 percent above the five-year average.

The vacancy rate has remained static at 9.3 percent and inflation-friendly lease structures are predicted to lead to rental increases during the second half of 2008.

Take-up of office space in Frankfurt currently stands at 272,000 square metres, representing a 36 percent increase on the same time in 2007.

Supply of office space in Paris has risen by 6 percent on a year ago but the market has been supported by a shortage of space in the most sought after areas.

The occupational office market in Prague experienced its highest ever first-half take-up levels in the first six months of 2008 with around 130,000 square metres of space acquired.

Demand for modern offices in Warsaw also remains strong, with take-up levels expected to reach 500,000 square metres by the end of the year, Savills said.

(Reporting by Sinead Cruise; Editing by Greg Mahlich)

(See www.reutersrealestate.com for the global service for real estate professionals from Reuters)

Source: http://uk.reuters.com/

Print   2008-10-06