The strong momentum in Europe’s office investment market is expected to continue throughout 2015, finds new research from JLL, global specialists in real estate services and investment management.
JLL’s outlook for 2015 is, on the whole, very positive. It predicts the European office investment market will benefit further from stiff competition among European and global equity for access to office investments across Europe, while plentiful debt finance at historically low costs will provide the extra capital that drives market activity and pricing.
Asian, US and Global capital is expected to continue to drive performance in Europe’s major office markets both through direct investment and alongside European partners.
JLL expects peripheral markets, such as Spain and Italy, to attract more capital and perform well as debt availability improves and investors travel further for yield.
Moreover, new capital sources will continue to arrive throughout the year, seeking yield across Europe and competing hard with European institutional investors.
In terms of prime office yields in the largest markets (UK, Germany and France), JLL is confident that a combination of strong investor demand and aggressive debt markets will continue to drive these down. During 2014 JLL’s prime European office yield benchmark fell by 20bps to 4.85 percent.
Office occupier markets will also continue their recovery in the year ahead. Last year, the office take up across JLL’s 24 indexed markets increased year on year to 10.5 million sqm, with notably strong performances in London, Berlin and Hamburg.
The recovery in occupier activity that spread last year to many of Europe’s smaller markets, including Brussels, Luxembourg, Barcelona, Milan and Prague, are expected to continue this year.
The ongoing shortage of prime office space in tight markets such as London City and London West End was a key factor pushing prime office rents higher last year, and this will continue in 2015. Large falls in incentives in Madrid, Dublin and, to a lesser extent, Amsterdam, also point strongly to future rental growth this year.
Chris Staveley, Head of European Office Capital Markets, JLL, commented: “The wall of capital seeking office investments in Europe will remain strong in 2015. On top of the considerable capital from global sovereign wealth funds and institutions, 2014 saw another near-record year for fundraising with €69 billion ($91 billion) raised globally, with at least one third of this targeting Europe.
“Though we enter 2015 in a bullish mood, Europe’s office markets have a number of clear and present risks. The ongoing confrontation in Ukraine, regional currency gyrations, national elections and the effects of deflation are each highly relevant for the market. However, as the global search for yielding investments intensifies, we expect the relative attractiveness of European office real estate as an asset class to prevail, making 2015 a strong year for investment and market performance.”
