European prime offices trend up, Continental retail lag UK restructuring, logistics demand continues

Porto saw prime rents surge by 21% and Lisbon by 10% on the back of the high leasing volumes in both these cities. Berlin saw rents increase by 12% despite lower activity suggesting the issue with take-up is a want of supply rather than lack of demand. Meanwhile, the other German cities continued to see steady rental growth of between 2-6%.

The UK regional cities also saw strong growth on the back of heightened demand, at the expense of older, secondary stock, while the city of London saw prime rents tick-up by 1.5%, despite Brexit uncertainty.

The retail picture between the UK and the rest of Europe continues to trend differently.

In the UK consumer confidence over the 12-month outlook has weakened since 2015, while for Europe overall it has held up better. Online retailers are growing their market share in all European countries, though the UK is the most advanced and estimated to be at 20% by end-2018, according to the ONS.

“While other European countries are further behind, they will also likely catch up at some point. This has strongly impacted demand for secondary assets for some years, however recently this has begun to weigh on demand for prime assets as well.

“Antwerp and Brussels saw prime rents fall by 10%, while Madrid (-9%) and Barcelona (-9.5%) also saw rents drop off. However, the majority of locations were flat, which indicates some resilience, and there were still a few pockets of growth. As with the office market, retail in Porto had a strong year with prime rents surging 20%, while Italian cities Florence (+6%) and Milan (+8%) saw continued momentum. A final positive on the fundamental side is that wage growth is recovering in most European countries.”

Competition to optimise distribution networks between retailers and retailers intensifies, supporting demand for industrial and logistics real estate, says UBS-AM.

“Manufacturers are keen to ensure they have sufficient logistics capabilities as there are signs that supply chains are becoming more locally focused. Smaller units are particularly in demand as there has been much less of a development focus on estates, particularly in and around cities. Take-up was very strong across most European markets as retailers and etailers rushed to grab space, although manufacturers were not quite as active.”

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