Q4 2022 sees Europe’s office yields adjust at fastest pace this cycle

According to Savills latest research, average prime EME CBD office yields moved out by 30 bps to 4.2 percent during Q4 2022, reflecting the most significant outward movement this cycle.

Manchester, Prague, Amsterdam, Milan and Paris La Defense have all moved out by 100 bps since Q1 2022, while Paris CBD, Brussels, Madrid, Cologne, Munich and Berlin each moved out by 90 bps, says the international real estate advisor. European office yields have moved out by an average of 75 bps between Q1 2022- Q4 2022. Overall, EME prime capital values have corrected by an average of 18 percent since Q1 2022.

Mike Barnes, Associate Director of European Research at Savills, says: “The IPF’s latest European rental growth forecasts indicate a modest average 1.9 percent prime rental growth per annum for the office markets that we track. Prime rental growth over the past 12 months has averaged 5.5 percent according to our data, and with resilient occupier requirements for green space, office-based employment growth and a shortage of new Grade A supply, there is a case to suggest that rental growth could exceed 3 percent per annum over the next five years, lifting current valuations.”

Lenka Pechová, Senior Research Analyst at Savills CZ&SK, adds: “Prague saw strong rental growth in 2022, with prime headline rents for modern office space in the city centre increasing by 12 percent year-on-year and stabilizing around €26.50 per sqm a month at year-end.”

Pavel Novák, Head of Office Agency at Savills CZ&SK, comments: “Rents are rising especially for the most desirable (premium) properties, attractive locations and new developments. The main drivers are construction costs, low supply and high demand in core locations. However, growth is not uniform, and it can be said that the gap between locations is widening.”