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Catella Market Indicator OFFICE | EUROPE SPRING 2017
Contents
MARKET OUTLOOK
3 Foreword
4 Growth in Europe –
value for investors
6 Invitation for investors –
diversification & stability
12 The rise of the European markets –
deals & pricing
14 European office market map
overview 2017
REGIONAL MARKETS
16 Baltics
17 Belgium
18 Denmark
19 Finland
20 France
21 Germany
22 Luxembourg
23 Netherlands
24 Norway
25 Poland
27 Spain
28 Sweden
30 United Kingdom
OTHER
31 Contacts research
Definitions and Sources
Prime yields Prime rent
The yield for a property of the highest quality specification Prime rent represents the top open-market rent that
in a prime location within the area. The property should can be achieved for a notional office unit (sq m.) per month.
be 100% let at the market rent at the time, to blue-chip The unit itself has to feature highest quality and is to be
tenants, with leasing term typical for prime property within situated in the best location of the local market.
that market. The yield should reflect net income received Sources
by an investor, expressed as a percentage of total capital The main sources are Catella local branches and the
value. inhouse research team. Additional sources are indicated
Stock where used.
Total volume of existing office floorspace in net sq m. of a
defined location/area. Office floorspace includes completed,
let and vacant office buildings/spaces.
2 CATELL A MARKET INDICATOR | EUROPE | SPRING 2017
Europe – a powerful invest-
ment spectrum
DEAR READERS,
Europe and its real estate markets are In the new-build segment, and even It is due to this extremely positive situ-
changing – not just due to the effects of more so in the refurbishment segment, ation in Europe’s real estate markets
the Brexit decision, but also, and indeed the market situation is changing in many that office real estate remains the top
primarily, because of the exceptionally countries: Co-working models, evolving preference for investors. Depending on
positive prospects for the coming years: office work practices, digitalisation and the level of risk appetite, the investment
In terms of economic policy and perfor- pay-per-use concepts are likely to prompt range in 2017 stretches from London’s
mance, the future currently looks bright faster rather than slower changes in what West End to – at least in theory –
for European companies – from the is required of office concepts in the com- Moscow.
manufacturing industry to the services ing years. The new requirements are still We hope you enjoy reading this issue!
sector. sporadic, but current observations pro-
However, this melange should also vide a good indication of how the future
be looked at in more detail: On the one will be. While there may be significant Thomas Beyerle
hand, there have been positive rental changes in office concepts, this will have Head of Group Research
trends, an overall increase in the rental no effect on the importance of location
volume and a large number of transac- as a factor for office real estate. In this
tions in recent months in the office regard, a sustainable location primarily
segment. These trends are also partly due means CBD areas and – as can be seen
to a situation which we have rarely seen throughout Europe – areas close to
to such an extent before. Hardly any new transport facilities such as train stations,
projects have been initiated. As is widely urban rail interchanges and airports.
known, supply shortages and rising It nearly seems as if the capital mar-
demand lead to price increases. The ket is already anticipating these trends.
number of exclusive office developments The majority of major European project
is low throughout Europe. However, developments are almost entirely for
high rents in existing properties caused mixed use. Office space, but only in com-
by supply shortages in the local market bination with retail and/or residential use.
are rarely economically sustainable. Our analysis of 32 office locations
Although the office segment will conse- in Europe identified these trends in the Catella – Providing
quently continue to be regarded as the clear majority of cases. So, if we can
high-end market analysis
number one investment vehicle in inves- ascertain rising rents in 19 out of 32
tors’ portfolios, the yield compression in locations – in other words, 19 locations Catella is a leading specialist in property
existing space and the increasing supply where yields are declining – the markets advisory services, property investments,
shortages are prompting investors to fund management and banking, with
are in a very strong position purely from
operations in 12 European countries.
turn their attention to project develop- a market perspective. Vacancy rates are
The group has sales of approximately
ments. Throughout Europe, the demand continuing to fall, and rents are increas-
SEK 2 billion and manages assets of
is there; however, lenders and investors ing across the board.
approximately SEK 150 billion. Catella is
are hesitant about getting involved in In terms of the transaction volume,
listed on Nasdaq Stockholm in the Mid
office developments, with their cyclical we have just seen an historic develop-
Cap segment.
reputation, in what appears to be a very ment: For the first time, Germany has
Catella provides high-end market
positive market environment. knocked the UK off its traditional top analysis products and services for the
spot, with France following in third property market. We use our perspec-
place. The Nordics are also performing tives from the financial markets and
extraordinarily well at present, in par- experience from investment banking to
ticular Sweden and Finland. In southern create truly forward-looking research.
Europe, Spain recently recorded its best Read more at catella.com
ever quarter.
CATELL A MARKET INDICATOR | EUROPE | SPRING 2017 3
Growth in Europe –
value for investors
Europe – macroeconomic condi- Norway and Italy have registered growth Europe’s population is on a similar tra-
tions for real estate investment of under 1%, the economies of Spain and jectory: in the immediate term, migra-
With phrases such as “Brexit”, Italian Ireland are currently recovering strongly. tion will provide a temporary boost,
banking crisis or “Greece’s debt dilemma” Along with Sweden and Luxembourg, but in the long run, Europe is ageing.
on everyone’s lips, it is safe to say that the rate of growth in those two countries Against this backdrop, it is necessary to
the conditions for investing in European is currently above 3%. Above-average take a close look at the continent’s differ-
markets have been better. But when read- growth is also evident in the Nether- ent regions, as the current urbanisation
ing the headlines, the important things lands, Germany, the UK, Poland, the trend is not a uniform development
are often lost. Nevertheless, Europe’s Czech Republic and Hungary. everywhere.
economy is growing, and continuously Unemployment in Europe has been The ECB continues to keep the
at that. Average predicted growth in falling constantly since 2013, and accord- main refinancing rate at zero, and it
GDP for the coming five years is forecast ing to estimates, it will reach a rate of has resorted to some unconventional
at 1.5%, with 1.8% growth expected for almost 8.1% in 2022. The figure for the monetary policy instruments in its fight
this year. While the up-and-coming USA outperforms this level by coming against low inflation and the economic
nations of Brazil and Russia are currently in at just over 5%. There are significant weaknesses of some eurozone countries.
in difficulty, the USA has returned to differences between national rates of Its multi-billion government bond-buying
a trajectory of stable growth. However, unemployment across Europe as well. programme (quantitative easing) has seen
US economic growth could easily run In Germany, just 4.2% of people of it support the markets with money since
into trouble if the Trump government is working age are currently out of work, the start of 2015, and it plans to stick to
able to put the ideas for a protectionist while Denmark is currently experienc- this strategy until the end of 2017 at least.
economic policy into practice. Every eco- ing something close to full employment It is a policy that not only poses a
nomics student who has heard a lecture with an unemployment rate of 3.9% (due threat to the retirement provisions made
on the Ricardian model, David Ricardo’s to economic fluctuations, there is, in by consumers, but a negative interest rate
study of the comparative cost advantages practice, always a base level of around for deposits also has the effect of a special
in foreign trade, knows that trade imped- 3%). In Spain, however, many people are tax on Europe’s businesses.
iments in the form of customs levies still registered as out of work despite the At the same time, doubts are growing
ultimately have a negative impact on all recent annual declines in unemployment. about the benefits of expansionary mon-
market participants. A stronger focus on In the past three years, the figure has etary policies. In the normal scheme of
the Asian countries, especially China, can gone from over 26% to the present level of things, falling yields for risk-free invest-
be expected in this case. 19.9%, and observers expect this number ments spur a higher level of consumption
Within Europe, the performance to fall further in the coming decade to and rising inflation.
of different countries reveals consider- ultimately dip below the 10% mark. However, this is not what is currently
able disparities: while Russia, Greece, happening in Europe. Instead, several
UNEMPLOYMENT RATE IN EUROPE
GROWTH RATE OF GDP* AND IN THE USA*
Source: Oxford Economics, IMF Source: Oxford Economics, IMF
% %
15 12
12
10
9
6 8
3 6
0
4
-3
-6 2
-9 0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2014
2010
2018
2022
2000
2002
2004
2006
2008
2012
2016
2020
GDP growth Brazil (y/y, %) GDP growth China (y/y, %) GDP growth India (y/y, %) USA Europe
GDP growth Russia (y/y, %) GDP growth USA (y/y, %) GDP growth Europe (y/y, %)
* estimates after 2016 * estimates after 2016
4 CATELL A MARKET INDICATOR | EUROPE | SPRING 2017
countries’ gross investment levels have The dilemma for the ECB is that it The countries in this report were an
been falling for years. Companies are not can only follow an interest rate policy average of approximately 21 basis points
basing their investment decisions only on designed for the entire eurozone, and below the target level of 2% in 2016.
the interest rate. there is no way of addressing the specific Along with the interest rate, other issues
In the US, the central bank (Fed) has situation in any individual country. By such as the individual sales quantities,
reduced its expansive activities and at now, it is high time that Germany and economic growth and confidence in overall
the same time carried out the first minor the Scandinavian countries saw their economic development are also of impor-
interest rate hike. It is simply a matter interest rates adjusted upwards, but such tance. The last of these factors is reflected in
of time before the ECB follows suit, but an increase would pose threats to the EuroStat’s business climate index.
we do not agree when the moment will economies of other states such as Italy While expectations regarding further
arrive. and Greece. economic development saw no major
While the eurozone’s inflation level Looking at inflation in 2016, a large changes in 2016 as a whole, the last quarter
has crept up slightly in recent months, this number of countries are far below the of the year saw a significant improvement
is more due to the rise in food and energy ECB’s target figure of 2%, and only the in the economic outlook of the eurozone,
prices. Despite this change, core inflation Czech Republic and Hungary exceed with a 3% increase in the index.
as defined by the ECB, i.e. the rate of infla- it. The other central banks of European As a result of these positive expecta-
tion excluding food and energy prices, has member states have set similar inflation tions, demand for company loans rose.
been stagnating for years. targets.
MONETARY POLICY AND FINANCIAL CONSEQUENCES
% Source: Property Market Analysis (PMA)
8
POPULATION GROWTH RATE IN EUROPE AND IN THE US* 7
% Source: Oxford Economics, IMF 6
1.2 5
4
1.0
3
0.8 2
1
0.6
0
0.4 -1
2010
2014
2016
2000
2002
2004
2006
2008
2012
0.2
10 year government bond yields
0.0
CPI Inflation rate Europe
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Main refinancing rate (EUR)
Europe United States * estimates after 2016 Main refinancing rate (USD)
DEVIATION FROM TARGET INFLATION RATE
OF ECB ECONOMIC SENTIMENT & BUSINESS LENDING
Source: Property Market Analysis (PMA) Source: Eurostat
% %
50 110 1
40
30 108
20 0
106
10
0 104
-10 -1
-20 102
-30
100
-40 -2
-50 98
-60
-70 96 -3
08/2014
11/2014
02/2015
05/2015
08/2015
11/2015
02/2016
05/2016
08/2016
11/2016
02/2017
Czech Republic
Italy
Luxembourg
Sweden
United Kingdom
Austria
Belgium
Finland
Denmark
France
Germany
Greece
Hungary
Ireland
Netherlands
Norway
Poland
Portugal
Spain
Economic sentiment
Change in business lending (%)
CATELL A MARKET INDICATOR | EUROPE | SPRING 2017 5
Invitation for investors –
diversification & stability
The office market in Europe – basic comparing these figures against national growth of 5.5% per annum. This recov-
information and portfolio strategies GDP results in an average correlation ery is exceptionally marked in Ireland,
Studying the macroeconomic conditions efficient of 0.5. Particularly Germany as the average annual rise in prices there
of a country or economic area is not (0.57), Sweden (0.66) and Finland (0.69) comes to over 17% since 2010. Above-
merely a pleasant side job to investing display very high correlations. The average increases are also evident in
in real estate: analysing macroeconomic value of the national markets fell by an Germany (6.7%), Norway (10.7%) and
parameters is, instead, essential for average of almost 34% in the two years Sweden (12.2%).
making a strategy regarding commercial 2008–2009, with Ireland (-89%), Spain If the ECB does actually switch to a
property a success. It is necessary to keep (-58%) and Norway (-47%) coming under more restrictive monetary policy at the
an eye on market cycles as economic tremendous pressure, while Germany start of 2018 and lower the amount of
growth and rising office property prices (-17%), the Netherlands (-16%) and money available to commercial banks
are positively correlated. This top-down Austria (-19%) display comparatively via the tender procedure, this move
development requires a further addition restrained losses. will have a knock-on effect on office
to the real estate property view in the case Between 2010 and now (as of 31 real estate markets around Europe,
of reduced capital growth expectations. December 2016), most countries once with average growth instead coming to
Looking and analysing growth rates again returned to stable growth, with around zero until 2021. However, a toler-
for office costs in different countries and office property registering an average ance range of +1% to -4% is expected.
PRIME OFFICE CAPITAL GROWTH OF SELECTED COUNTRIES
% Source: Property Market Analysis (PMA)
40
30
20
10
0
-10
-20
-30
-40
-50
-60
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
GDP GROWTH OF SELECTED COUNTRIES
%
8
6
4
2
0
-2
-4
-6
-8
-10
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Finland France Germany Spain Sweden
6 CATELL A MARKET INDICATOR | EUROPE | SPRING 2017
Before analysing the oppor- EUROPEAN REAL ESTATE MARKETS (OFFICE) – SIZE STRUCTURES
Source: Catella Research, Property Market Analysis (PMA)
tunities and risks connected
0.65% Edinburgh n
with Europe’s different cities, 0.80% Birmingham b
0.82% Glasgow v
it is necessary to look at 0.94% Budapest c 1 London 11.84%
0.95% Prague x
the markets’ relative size in 0.96% Lisbon z
order to assess their impor- 1.00% Luxembourg ;
1.08% Lille l
2 Paris 11.69%
tance within the European 1.12% Dublin k
1.20% Marseille j
context and show the wide 1.22% Rotterdam h
spectrum of investment 1.24% Manchester g
destinations. 1.39% Barcelona f
1.59% Warsaw d
Within the group of 3 Berlin 5.92%
1.68% Lyon s
35 major cities across the Nordics
1.98% Cologne p
continent, London and Paris
alone account for almost 1.98% Stuttgart a
Continental Europe
24% of the entire total of 2.00% Amsterdam o 4 Munich 4.58%
office space (in 2016) with 70 2.51% Rome i
UK/Ireland
million sq m.
2.52% Dusseldorf u 5 Moscow 4.57%
By way of comparison,
the German cities of 2.58% Milan y
Munich, Berlin, Frankfurt, 2.81% Madrid t
6 Brussels 4.45%
Cologne and Dusseldorf
2.87% Helsinki r 7 Hamburg 3.90%
make up just under 18% of
3.05% Copenhagen e
the total market. 8 Stockholm 3.83%
3.29% Oslo w 9 Vienna 3.57%
q Frankfurt 3.43%
PRIME NET YIELDS (TOP-15 CITIES) yields in Munich, Stockholm, Berlin and ties must actually be available. Here,
(AVERAGE; 2017–2021) Hamburg come to just 3–3.5% for the market size is a good indicator.
% Source: Property Market Analysis (PMA)
following few years. Generally speaking, comparatively
5 Similarly, the yields in many other large markets obviously have a lower
cities around the continent are below 4%. Sharpe Ratio when looked at in the long
4
The conventional (classic) model of term.
3 the yield-to-risk profile compares the Amsterdam and Oslo are two very
expected yield, normally postulated as interesting markets for office property
2
total returns, against changes in volatil- as both cities have high expected relative
1 ity over time. rent growth and a positive Sharpe ratio.
The Sharpe ratio puts a value on Berlin proves itself to be a very
0 the excess yield earned by an invest- dynamic market, as expected future
Cologne
Copenhagen
Stockholm
Munich
Berlin
Hamburg
Madrid
Paris
Stuttgart
Oslo
Frankfurt
Barcelona
Vienna
Milan
Dusseldorf
ment relative to the risk, and it permits growth in rents reaches a value of almost
both components to be combined. By 4% per annum. However, the Sharpe
juxtaposing the Sharpe ratio with the ratio of 0.29 is due to volatility in the
expected growth in rents for office prop- city, and this low figure means that
erties, it is possible to rate the opportuni- returns in Berlin are not commensurate
International investors continue to ties present in specific markets. to the risks involved. Obviously, the
show great interest in Europe’s major To make a practical assessment, it is capital market rates the investment loca-
cities, something reflected in the low also important that it is possible to invest tion of Berlin higher than it would be
purchase yields. For example, purchase in a market, i.e. investment opportuni- fundamentally justified
CATELL A MARKET INDICATOR | EUROPE | SPRING 2017 7Investment matrix – Forecast 2017–2021 Source: Property Market Analysis (PMA)
5
4
Berlin
Expected average rental change (2017–2021)
Munich
3
Amsterdam
Stockholm Oslo
Milan
Barcelona Paris
Luxembourg
2 |
Madrid Moscow
Dusseldorf Prague — Cologne Rotterdam
Frankfurt Lyon
Edinburgh — Birmingham
Vienna
Helsinki — Brussels
1 Manchester
Copenhagen Hamburg Stuttgart
Budapest Glasgow Marseille
Lisbon
Rome
Dublin Warsaw Lille
0
-1
London
-2
0 20 40 60 80 100 120
Standardised sharpe ratio
Note: the size of a bubble reflects the market size of a specific location.
Nordics Continental Europe UK/Ireland
Applying a “buy and hold strategy” view risk profile proves its value in the form ity than the market as a whole. If equal
of the selected elements, we recommend of a μ-σ calculation. Catella Research has to 1, the level of volatility in the market
against investing in London’s office augmented the comparison of expected is exactly the same as the volatility of
property sector. Though the Sharpe ratio yields and volatility by incorporating the the larger market, while a factor below 1
is in the lower mid-range, we expect beta risk factor (beta factor/β factor). means that the market in question is less
top-end real estate to return, on average, The beta factor indicates the link volatile than the aggregate market.
negative growth rates for rent in the between the yield development of one According to the capital asset pricing
future. location and the overall market. If higher model (CAPM), a high beta factor is
Leaving this assessment of the oppor- than 1, this means that an investment in reflected in a high yield and, conversely,
tunities aside, the conventional yield-to- a specific market displays greater volatil- a low factor is reflected in a low yield.
8 CATELL A MARKET INDICATOR | EUROPE | SPRING 2017Risk-Return Profile 2017 Source: Catella Research, Property Market Analysis (PMA)
20
Madrid—
Dublin
|
15
—Barcelona
Munich —
Berlin
|
Note: the size of a bubble
10 reflects the beta risk of a
Total Return (2017) in %
Cologne—— Paris
—Prague Frankfurt specific location.
CBD — —Stockholm
|
Dusseldorf——
Nordics
Rotterdam——— — Marseille |
Paris Central— Paris
La Défence Continental Europe
Amsterdam— — Hamburg
—European Portfolio* UK/Ireland
Brussels— Lille—
—Budapest —Paris Western Business District European Portfolio:
Stuttgart—
5 Rome average ideal Portfolio
Luxembourg— —Lyon |
Vienna— Helsinki — —Milan
Birmingham— —Glasgow
| —Edinburgh
Manchester —London M25 West
Copenhagen— Lisbon—
|
Warsaw —Oslo
0
—London Docklands
—London City
London Central —
—London West End and Midtown
-5
0 5 10 15 20 25
Volatility in %
The size of the bubbles in the chart cor- made up for by the commensurately high Investment managers overseeing large
responds to the beta factor: the larger yields expected for 2017. real estate portfolios should not make
the bubble, the higher the given market’s Direct investment in Dublin’s office their decisions solely on the base of a
underlying beta factor. property market can generate a top total specific investment option’s favourable
Dublin, Moscow, Barcelona and return of 15.8%, a figure surpassed only yield and risk factors.
Madrid are relatively risky markets. by Madrid’s 18.7%.
However, the investment risk derived In contrast, there are no high yields
from the beta risk in the four markets is to compensate for the beta risks values of
Paris and London.
CATELL A MARKET INDICATOR | EUROPE | SPRING 2017 9CORRELATION COEFFICIENT OF EUROPEAN OFFICE MARKETS (1994-2021)
Vienna Brussels Prague Copenhagen Helsinki Paris Berlin Dusseldorf Frankfurt Munich
Vienna 1.00 0.65 0.26 0.53 0.13 0.72 0.79 0.72 0.70 0.69
Brussels 0.65 1.00 0.40 0.58 0.28 0.66 0.51 0.42 0.51 0.46
Prague 0.26 0.40 1.00 0.54 0.67 0.47 0.13 0.26 0.27 0.36
Copenhagen 0.53 0.58 0.54 1.00 0.31 0.58 0.39 0.22 0.39 0.41
Helsinki 0.13 0.28 0.67 0.31 1.00 0.38 0.17 0.11 0.29 0.36
Paris 0.72 0.66 0.47 0.58 0.38 1.00 0.70 0.65 0.73 0.78
Berlin 0.79 0.51 0.13 0.39 0.17 0.70 1.00 0.72 0.74 0.80
Dusseldorf 0.72 0.42 0.26 0.22 0.11 0.65 0.72 1.00 0.80 0.80
Frankfurt 0.70 0.51 0.27 0.39 0.29 0.73 0.74 0.80 1.00 0.84
Munich 0.69 0.46 0.36 0.41 0.36 0.78 0.80 0.80 0.84 1.00
Stuttgart 0.67 0.29 0.03 0.27 0.14 0.48 0.79 0.70 0.75 0.75
Budapest 0.42 0.59 0.78 0.75 0.63 0.59 0.33 0.30 0.38 0.45
Dublin 0.54 0.48 0.32 0.52 0.40 0.56 0.46 0.29 0.49 0.64
Rome 0.22 0.50 0.17 0.27 0.33 0.45 0.33 0.36 0.60 0.41
Amsterdam 0.51 0.44 0.16 0.44 0.46 0.39 0.48 0.33 0.57 0.44
Oslo 0.57 0.38 0.71 0.55 0.64 0.68 0.42 0.56 0.60 0.61
Warsaw 0.32 0.26 0.69 0.36 0.57 0.38 0.17 0.40 0.23 0.25
Barcelona 0.56 0.69 0.34 0.67 0.37 0.62 0.56 0.31 0.60 0.57
Madrid 0.65 0.62 0.39 0.78 0.37 0.75 0.63 0.45 0.65 0.72
Stockholm 0.47 0.45 0.48 0.47 0.68 0.60 0.52 0.26 0.47 0.56
London 0.21 0.24 0.54 0.37 0.61 0.59 0.22 0.14 0.35 0.39
Source: Catella Research
Instead, an investment which looked have access to options for diversifying Taking into account the fluctuation risks
rather uninteresting at first glance can their overall portfolios. present in all local markets, a European
actually be of considerable interest for Barcelona and Madrid score 0.87 in property portfolio should generate an
the portfolio as a whole if the option in this context, a fact that we feel needs no overall yield of 6.7% in 2017.
question offers potential for diversifica- further explanation. Looking at the 35 different local
tion. Stuttgart and Prague have a correla- markets, we can see that the model yield
The matrix of correlation coefficients tion coefficient of 0.03. With an average as per CAPM is below actual yield for
shows if an investment does in fact offer correlation of 0.33, Warsaw is particu- nine of them. Insight which suggests that
such potential or not. larly suitable for portfolio diversification. these markets are actually overpriced
European integration and the crea- Portfolio selection is far more than just and that yields do not adequately reflect
tion of an internal market spanning the “not putting all your eggs in one basket”. risks, i.e. market risks.
continent means that the economic links Similarly, it is more than putting together This applies in particular to the above
between different cities are growing all a risk- and yield-optimised portfolio locations London and Paris that, from
the time. based on expected performance figures. a capital market approach, they have an
It therefore comes as no surprise that Returning to CAPM, it can be used average of 700 bp overvaluation.
all major cities in Europe reveal positive to identify fair prices for office markets In contrast, Germany’s markets
correlations. As these correlations range by applying the yield construction in the return yields are too high, making
from 0.03 to 0.87, investment managers theoretical model. them undervalued within the European
10 CATELL A MARKET INDICATOR | EUROPE | SPRING 2017Source: Catella Research
Stuttgart Budapest Dublin Rome Amsterdam Oslo Warsaw Barcelona Madrid Stockholm London
0.67 0.42 0.54 0.22 0.51 0.57 0.32 0.56 0.65 0.47 0.21
0.29 0.59 0.48 0.50 0.44 0.38 0.26 0.69 0.62 0.45 0.24
0.03 0.78 0.32 0.17 0.16 0.71 0.69 0.34 0.39 0.48 0.54
0.27 0.75 0.52 0.27 0.44 0.55 0.36 0.67 0.78 0.47 0.37
0.14 0.63 0.40 0.33 0.46 0.64 0.57 0.37 0.37 0.68 0.61
0.48 0.59 0.56 0.45 0.39 0.68 0.38 0.62 0.75 0.60 0.59
0.79 0.33 0.46 0.33 0.48 0.42 0.17 0.56 0.63 0.52 0.22
0.70 0.30 0.29 0.36 0.33 0.56 0.40 0.31 0.45 0.26 0.14
0.75 0.38 0.49 0.60 0.57 0.60 0.23 0.60 0.65 0.47 0.35
0.75 0.45 0.64 0.41 0.44 0.61 0.25 0.57 0.72 0.56 0.39
1.00 0.19 0.40 0.37 0.44 0.43 0.09 0.44 0.45 0.39 0.12
0.19 1.00 0.51 0.42 0.44 0.66 0.50 0.62 0.65 0.64 0.60
0.40 0.51 1.00 0.28 0.58 0.50 0.14 0.76 0.80 0.54 0.49
0.37 0.42 0.28 1.00 0.50 0.31 0.20 0.65 0.48 0.38 0.26
0.44 0.44 0.58 0.50 1.00 0.50 0.22 0.73 0.65 0.60 0.29
0.43 0.66 0.50 0.31 0.50 1.00 0.80 0.48 0.54 0.53 0.60
0.09 0.50 0.14 0.20 0.22 0.80 1.00 0.17 0.23 0.28 0.32
0.44 0.62 0.76 0.65 0.73 0.48 0.17 1.00 0.87 0.62 0.36
0.45 0.65 0.80 0.48 0.65 0.54 0.23 0.87 1.00 0.61 0.43
0.39 0.64 0.54 0.38 0.60 0.53 0.28 0.62 0.61 1.00 0.52
0.12 0.60 0.49 0.26 0.29 0.60 0.32 0.36 0.43 0.52 1.00
context. These findings can be used as RETURN SPREAD BETWEEN REAL RETURNS AND MODEL RESULTS (CAPM)
indicators, but they should be treated % Source: Property Market Analysis (PMA)
with care as the requirements for apply- 900
ing the CAPM model are not met in full. 600
Insufficient divisibility, asset hetero- 300
geneity, problems with actual availability 0
and the lack of short-selling options all -300
greatly restrict the theory‘s applicability -600
-900
to the real estate markets.
-1,200
In other words, there is some bad
-1,500
news: mispricing and market inefficien-
Stockholm
Vienna
Brussels
Prague
Copenhagen
Helsinki
Lille
Lyon
Marseille
Paris: Central
Berlin
Cologne
Frankfurt
Hamburg
Stuttgart
Budapest
Dublin
Milan
Rome
Luxembourg
Amsterdam
Rotterdam
Oslo
Warsaw
Lisbon
Moscow
Barcelona
Madrid
Birmingham
Edinburgh
Glasgow
London: Central
Munich
Dusseldorf
cies are always present in property
markets. However, there is also good
news: yield sources will never dry up for
investors, particularly when it comes to
options far removed from classic core
real estate.
CATELL A MARKET INDICATOR | EUROPE | SPRING 2017 11The rise of the European
markets – deals & pricing
The office market in Europe – Analogously to the transaction volumes, We can also see that 50% of all trans-
deals and pricing it is necessary to point out that in Q3 actions within the yield spectrum are
Transactions in the office segment have 2007, when prices were at their highest located in the 6.7–4.5% range.
seen constant improvement since the before the crash, investing in European Top transactions took place with a
2007/2008 financial crisis. Looking at office property reached its peak cost and, yield level of 2%.
the data from 2007 to 2017, we can see as a result, the lowest interest return. In In the lowermost segment of the yield
that the highest annualised transaction autumn 2007, the medium-term capi- distribution table, there are transactions
volume was recorded in 2007 at EUR 126 talisation rate (all risk yield; ARY) came with yield returns of over 13%, so it is
billion. This figure fell by almost 75% to to 5.5%. Medium-term yields of over 7% clear that a lot of money can still be
EUR 32 billion in 2009. were once again being generated at the made with real estate outside of conven-
Since this low point, transactions end of 2009. tional core markets.
began to grow continously almost 5% The yield compression which set in The buyer profile has this year seen
a year, though this annual increase afterwards has resulted in the present a clear shift towards non-national
stopped in 2016 and has fallen by 10%. medium-term yield of 5.8% for office investors: while just under 48% of buyers
This decline in transaction volume property, i.e. today’s prices have again were from abroad in 2016, Q1 2017 has
cannot be interpreted as a turning point edged towards their peak ten years ago. already seen the figure for non-domestic
in the investment market. The difference in prices has fallen to purchasers jump to almost 66%.
Prices for offices continue to rise, under 5%. The number of other domestic players
resulting in yield compression in this Looking at distribution, we see that on the market has remained more or less
segment. An assessment of the prices the median empirical yield distribution identical in recent years.
for office investments includes not just – transactions over the past few years – Looking at Q1 2017, we can see that
classic core and “core plus” items, but stands at just 5.5%. It is exactly the same the different investor categories favoured
also (albeit to a lesser extent) value- as the simple mean value of pre-crisis the German and UK market.
added properties. levels.
OFFICE TRANSACTION VOLUME EUROPE
€ billion Source: Catella Research, PMA
40
35
30
25
20
15
10
5
0
Q1 ’07
Q3 ’07
Q1 ’08
Q3 ’08
Q1 ’09
Q3 ’09
Q1 ’10
Q3 ’10
Q1 ’11
Q3 ’11
Q1 ’12
Q3 ’12
Q1 ’13
Q3 ’13
Q1 ’14
Q3 ’14
Q1 ’15
Q3 ’15
Q1 ’16
Q3 ’16
Q1 ’17
Volume
Long term average = € 19.47 billion
12 CATELL A MARKET INDICATOR | EUROPE | SPRING 2017Almost a quarter of the year’s property CROSS BORDER ANALYSIS IN THE OFFICE SEGMENT
transactions involved real estate in the Source: Real Capital Analytics (RCA)
%
country. The German market leading
25
the way with 27%, followed by the UK
with 25.5%, with France in third place at 20
almost 14%.
15
To conclude this study, we would
like to take a closer look at the cohort of 10
foreign investors. Many of them are from
5
the USA, and they have invested an aver-
age of EUR 17.8 billion in the European 0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
office property sector over the past three
years.
US-based investor Blackstone USA Canada South Korea Hong Kong
Germany France Qatar
deserves to be mentioned in this context:
United Kingdom Switzerland China
the company has acquired assets in the
segment worth EUR 6.6 billion in the
MOST ACTIVE COUNTRIES BY OFFICE VOLUME Q1 2017
last two years alone. Source: Catella Research, PMA
Another visible trend is how an ever-
Others* 2.9%
growing number of investors from Arab
Finland 1.6%
and Asian states are moving into the Germany 27.2%
Belgium 1.8%
European office market. Investors from Denmark 2.2%
South Korea, Qatar, China and Hong
Netherlands 5.0%
Kong were responsible for purchases
amounting to EUR 9 billion in Europe in Spain 6.1%
2016 and EUR 1.3 billion in Q1 2017.
Turning to European investors, it is Norway 6.6%
United Kingdom 25.2%
apparent that the Swiss are particularly
Sweden 7.2%
fond of acquiring properties outside
of their own borders, having invested
France 13.9%
EUR 8 billion in the last three years
alone. *Poland, Baltics, Luxembourg
BUYER COMPOSITION IN THE EUROPEAN PRICING ANALYSIS*
OFFICE MARKET
Source: Real Capital Analytics (RCA)
% Bottom Bottom 25% Median Top 25% Top
120 13.1% 6.7% 5.5% 4.5% 2.0%
3 2 3 6 2
100
15 12 11 14 8
7
80 6 10 10 10
18
60 28 24 22 23
* Yield at acquisition: quartile (data based on past 12 months)
40
Source: Real Capital Analytics (RCA)
20
47 52 54 48 66
0
2013 2014 2015 2016 2017
Cross-Border
Institutional
REIT/Listed
Private
User/Other
CATELL A MARKET INDICATOR | EUROPE | SPRING 2017 13European office market map
overview 2017
EUR
1.30
bn
EUR SWEDEN
1.19
bn
NO R W A Y
3.70
34.20 3.40
9,925,871 48.90
11,587,583
OSLO
3.90
STOCKHOLM
25.30
2,097,000
GOTHENBURG
EUR 4.00 4.25
4.60 EUR
0.39 21.25 20.90
bn bn
9,611,908 2,200,000
UK EUR D E NM A R K
0.90
bn COPENHAGEN MALMÖ
5.25
3.25
MANCHESTER 35.60 NE T H E R L A ND S
26.00
3,733,262 5.12 4.10 EUR
11,754,939 0.26
5.30 16.25 27.90
bn
32.10 BIRMINGHAM 3,649,168 5,986,268 HAMBURG POLAND
2,418,737 LONDON
4.00 CITY AMSTERDAM 3.80 3.10
71.50 ROTTERDAM 26.50 EUR 28.50
6,207,726
3.50 LONDON WEST END 7,577,590 4.90 BERLIN
17,821,706
EUR bn
111.50 4.65 0.32 DUSSELDORF
BRUSSELS bn G E R M A NY 3.85
5,956,279 18.75
B E L G IU M 22.00
EUR COLOGNE 3.60
13,392,385 0.12
5,964,191
LUXEMBOURG bn 38.00
3.00 FRANKFURT
10,311,190
63.50 4.45
PARIS STUTTGART
52,238,805 45.00
3,064,787 3.10
3.50 MUNICH
36.50
23.00
13,770,914
6,032,613
EUR
2.50
bn 4.50
LYON
F R A NC E 19.20
5,175,129
EUR
1.10
bn
SPAIN
3.40 3.60
MADRID BARCELONA
33.00 24.00
12,850,000 6,000,000
14 CATELL A MARKET INDICATOR | EUROPE | SPRING 2017EUR
0.29
bn
FINLAND
OULU
7.50
20.00
Prime yields Due to high demand for prime assets,
the yields in most European locations are
616,400 31
33 forecast to decrease further. In addition
11
14
6.75 locations to this, the yield gap between prime and
19
17
20.00 secondary is expected to narrow.
7.50
886,000
19.00
TAMPERE 268,800
LAHTI 4.50 Prime rents Limited class-A stock and a lagging development
33.00 pipeline in prime locations are the main reasons
TURKU 7.25 18
19
8,633,000
33 for growing or stable prime rents in the medium-
HELSINKI 19.00 12
17
locations term. Decreasing prime rents in London, due to
828,300
TALLINN 21
ongoing BREXIT uncertainty.
E ST O N I A 6.20
18.00
638,000
Office transaction volume
LATVIA 6.80
RIGA
17.00 Source: Catella Research 2017, PMA
EUR
0.15 760,000 Office transaction volume per country in EUR billion
bn
% change
LITHUANIA compared to
Q1 2017 Q1 2016 Q1 2016* 2016
6.50 Spain 1.10 0.51 116% 5.91
VILNIUS
17.00 France 2.50 1.32 89% 19.12
570,000 Baltics 0.15 0.10 50% 0.48
Norway 1.19 0.84 41% 2.88
WARSAW Germany 4.90 4.00 22% 22.10
Sweden 1.30 1.09 20% 5.43
4.90
Netherlands 0.90 0.93 -3% 5.90
20.00
Belgium 0.32 0.36 -11% 1.78
4,985,463
Luxembourg 0.12 0.16 -26% 0.99
Finland 0.29 0.39 -27% 1.64
Denmark 0.39 0.57 -31% 2.17
United Kingdom 4.60 8.30 -45% 22.30
Poland 0.26 0.54 -52% 1.88
* Percent change may not be accurate, due to roundings
EUR
1.30 Office Transaction volume per country in EUR billion, Q1 2017
bn
Prime office yield, net %
Prime office rent, EUR/sq m. per month
Office stock
Forecast 6 months
CATELL A MARKET INDICATOR | EUROPE | SPRING 2017 15Baltics
Great opportunities at attractive yields
ALTHOUGH MOST AFFECTED BY THE TOTAL OFFICE STOCK IN PROPORTION
TO TOTAL VACANCY
CRISIS, the Baltics region witnessed
great recovery afterwards, while the EU Tallinn
as a whole stagnated. The Baltics GDP
growth was 2.0% in 2015 and 1.9% in
2016. During the past few years, while
external environment has restrained
the economic growth, the Baltics GDP
growth has been mostly driven by the
Riga
domestic consumption. Along with the
economic improvement of the main
trade partners, the GDP growth is
expected to pick up again, landing near
2.6% in 2017. Vilnius
Despite of the Baltics having generally
stood out with solid inflation rates as
compared to the rest of EU, since 2014
the inflation rates have plummeted due to
energy related commodities pricing. From
the 2H 2016, attributable to the disappear-
ance of the negative impact from energy
related prices, the inflation has picked
up again with rest of the EU. In 2017 the ized, the transaction volume is limited GROWTH RATES OF PRIME RENT
inflation is expected to reach 2.1%. by the supply of suitable assets at accept- %
The declining unemployment and able pricing. 12
low inflation across the Baltics has led to Local investors as well as investors 10
8
significant real wage increase, which in from Nordic and CIS countries dominate
6
turn has driven the private consumption the market. The majority of the main 4
growth. Unemployment is expected to local investors are actively seeking 2
decrease further, whereas structural investment opportunities. There has also 0
-2
unemployment remains the key issue been increasing interest among investors
-4
to reduce unemployment rates in the from CIS countries over the past year. -6
future. While the prime yield rates have -8
The Baltics commercial property compressed significantly over the past Tallinn Riga Vilnius
markets have been rather active from five years, further moderate contraction 2000-2008 2009-2016 2017-2020
2H 2012 onwards in terms of transaction is expected due to excessive demand for
volume. In 2016, the Baltic property prime assets in the region. The current
investment market recorded a trans- prime office yield levels are around 6.2%
action volume of around EUR 1.1 billion. in Tallinn, 6.5% in Vilnius and 6.8% in OFFICE TRANSACTION VOLUME
Although the market is very well capital- Riga. In EUR million
200
150
LOCATION KEY FACTS AS OF Q1 2017 100
Office transaction Prime rent
Office stock, volume, p. m., Prime yield, Vacancy rate,
City sq m. mn EUR EUR/sq m. % % 50
Tallinn 638,000 25.0 18.00 6.20 5.00
Riga 760,000 11.0 17.00 6.80 7.40 0
2008
2009
2010
2011
2012
2013
2014
2015
2016
Q1 2017
Vilnius 570,000 75.0 17.00 6.50 6.10
Forecast 6 months Tallinn Riga Vilnius
16 CATELL A MARKET INDICATOR | EUROPE | SPRING 2017Belgium
Prime yield at historically low level
THE BELGIAN ECONOMY grew by an look are mainly external. In particular, TOTAL OFFICE STOCK IN PROPORTION
TO TOTAL VACANCY
annualised 1.1% in Q4 2016, just below any potential shift to a less trade-friendly
the overall growth rate of 1.2% last year. global environment would have negative
Domestic demand and net exports both repercussions for the export sector. Bel-
contributed notably to GDP growth, gium has tight trade links with the UK.
Brussels
while changes in inventories were a drag After strong performances in 2016,
on growth. Consumer prices rose by 1.8% office investment volumes witnessed a
in 2016, compared to 0.6% in 2015 and slow start to the year in Q1, with EUR 138
0.2% in the euro area at large. They are million invested in Brussels office proper-
forecast to rise by 2% in 2017 and by 1.8% ties. Compared to the same period in
in 2018. Belgium’s economy is expected 2016 this is a decrease of 59%. Neverthe-
to grow by approximately 1.5% in 2017 less, appetite, especially from domestic
and 2018. Domestic demand is projected investors, is still strong and healthy as
to strengthen gradually, leading to a the economic environment is forecast to
diminishing contribution to growth from remain attractive this year. The largest
net trade. Unemployment is forecast to transaction was the acquisition of IT so far. The prime yield decreased further
continue decreasing steadily, falling to Tower for approx. EUR 76 million by AG during the past 12 months to a current
7.6% in 2018. Inflation is set to hit 2% in Real Estate. However, foreign investors low of 4.65% for Brussels and could even
2017 and 1.8% in 2018. Risks to the out- didn’t take place on the Brussel market witness a slight further compression dur-
ing 2017.
In Brussels, the take-up is around
GROWTH RATES OF PRIME RENT OFFICE TRANSACTION VOLUME
80,200 sq m. in Q1, mainly helped by
% In EUR million
2,500
a 22,000 sq m. pre-letting of Beobank.
3.5
We expect a relatively strong decrease
3.0
2,000 of activity in 2017, take-up should stand
2.5
1,500
at around 350,000 sq m. for the whole
2.0
year. The vacancy rate recorded further
1.5 1,000 decrease in Q1 and stands at around
1.0
500
9.2%. However, this should increase dur-
0.5 ing the year, despite the limited specula-
0.0 0 tive supply awaited. The prime rental
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Q1 2017
Brussels levels continue their upward movement
Brussels
2000-2008 2009-2016 2017-2020 in the Periphery (in the Airport district)
to reach EUR 15.40/sq m./month. Recov-
LOCATION KEY FACTS AS OF Q1 2017 ery will be led by speculative deliveries
Office transaction Prime rent following strong consistent demand for
Office stock, volume, p. m., Prime yield, Vacancy rate,
City sq m. mn EUR EUR/sq m. % % new spaces.
Brussels 13,392,400 137.6 18.75 4.65 9.00 2017 is set to be a pivotal year for
Forecast 6 months Belgium. Political uncertainties in
Europe, increasing volatility and slightly
growing interest rates will contribute to
slightly decrease the attractiveness of the
investment market in the coming years.
As a result, investors will be more selec-
tive in their acquisitions, mainly focusing
on core assets. Conversely, activity is
forecast to decrease on the letting market
in 2017. Prime rents will globally remain
stable, though core locations will continue
to see slightly upward pressure on rents
due to limited supply.
CATELL A MARKET INDICATOR | EUROPE | SPRING 2017 17Denmark
Lack of prime office space in CBD
TOTAL OFFICE STOCK IN PROPORTION the forecast horizon. Following several
TO TOTAL VACANCY
years of subdued price growth, inflation
is expected to pick up in 2017 and 2018.
The increase in inflation reflects increas-
ing energy prices, higher capacity utilisa-
tion and higher wage growth.
Office investment volume in Co-
penhagen reached EUR 288 million, a
strong increase of 53% compared to the
Copenhagen first quarter of 2016. There is a strong
focus on well-located properties in the
harbour submarkets in Copenhagen and
CBD. The high demand for prime office
properties, together with the low supply,
pressure the investors to seek in more
peripheral areas around Copenhagen.
ECONOMIC GROWTH in Denmark We have seen a compression of the prime
is gradually gaining pace. Real GDP yield level towards 4.00% over the first
growth has reached 1.0% in 2016 and is quarter of 2017 and we expect to see the
expected to accelerate to 1.5% in 2017 prime office yield remain around this
and 1.8% in 2018. Private consumption level, with a slight downside potential
is forecast to remain the main growth during 2017. Compared to Q1 2016 prime
driver with increasing contributions yield dropped by 28 basis points.
from investment. Strong employment Companies are targeting modern
growth, rising disposable incomes and leases in CBD and this has led to a slight
low interest rates have stoked strong uplift in rents in CBD and some sur-
domestic demand in recent years and rounding areas such as Ørestaden. Prime
these factors will continue to support rent currently stands at EUR 21.25/ compared to 2016. This is due to a
robust private consumption growth over sq m./month and remained unchanged relatively high vacancy rate of 8.6% in
Copenhagen and declining amounts of
space recorded in CBD areas are offset
by development space in the periphery
OFFICE TRANSACTION VOLUME GROWTH RATES OF PRIME RENT with lower market rents. There is still a
In EUR million % high demand for prime office space in
1,500 15 the center of Copenhagen, but the supply
does not meet the demand. We expect
1,200 12
demand to continue to pick up momen-
900
9
tum, but the offer remains tense.
600
6
300
3
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Q1 2017
0
Copenhagen
Copenhagen
2000-2008 2009-2016 2017-2020
LOCATION KEY FACTS AS OF Q1 2017
Office transaction Prime rent
Office stock, volume, p. m., Prime yield, Vacancy rate,
City sq m. mn EUR EUR/sq m. % %
Copenhagen 9,611,900 288.0 21.25 4.00 8.60
Forecast 6 months
18 CATELL A MARKET INDICATOR | EUROPE | SPRING 2017Finland
Opportunistic TOTAL OFFICE STOCK IN PROPORTION
TO TOTAL VACANCY
investments attract
FINLAND’S ECONOMY turned to fication between core and opportunistic
broad-based growth in 2016 by 1.0%. properties.
The expansion is expected to continue in The office yield in Helsinki CBD con- Oulu
2017 but at a somewhat lower pace due tinued to decline and now stands at 4.5%.
to weak income growth which should The yield requirement decreased most in
hold back domestic demand. Domes- the city centre, in other key office areas
tic demand increased on the back of the decline was less severe. In growth
strengthening private consumption and centres, the yield levels have decreased Tampere
Lahti
construction investment. more moderately and partly remained
Employment has started to increase unchanged. Helsinki
and job creation should become more Turku
In the near future, the transaction
robust, resulting in a lower unemploy- volume is expected to remain at a high
ment rate. The GDP growth expansion level. The trend is maintained by high
GROWTH RATES OF PRIME RENT
is expected to continue in 2017 but at foreign demand and the low level of
%
a somewhat lower pace due to weak return offered by alternative investment
5.0
income growth which should hold back instruments. The number of foreign
domestic demand. In 2018, growth is players is expected to grow in the Finnish
2.5
expected to pick up again as improved market and the improving liquidity is
cost competitiveness boosts exports and likely to further strengthen the favour- 0.0
investment. able development.
The real estate transaction volume In Helsinki’s city centre there is -2.5
last year exceeded the previous record shortage of high-quality offices and, for
in Finland, and it seems like the market these, users are willing to pay top rents. -5.0
will remain very active also in 2017. As We have seen rents of up to EUR 40.00/ Helsinki (Metropolitan area)
in recent years, the majority of buyers sq m./month for small premises in the 2000-2008 2009-2016 2017-2020
were domestic investors, while during central business district. The CBD prime
the previous peak years, the growth in rent is now EUR 33.00/sq m./month, an OFFICE TRANSACTION VOLUME
volume was largely a result of interna- increase of 3% compared to Q1 2016. The In EUR million
tional investors operating at high levels prime rent in the surrounding area rose 1,500
of leverage. The Finnish office investment as well, and is now EUR 24.50/sq m./
1,200
market slowed down in the first quarter month. In the Helsinki Metropolitan
of 2017 to EUR 285 million, a decrease of Area, the amount of vacant office space 900
27%. Similarly, office volume in Helsinki is still high, with now 1.1 million square 600
Metropolitan Area also declined by 22% metres of empty office space. The vacancy
to EUR 247 million. In addition to exist- rate is nearly 13%, mainly due to high 300
ing players, many other foreign investors supply of old office space. 0
2010
2016
2001
2002
2003
2004
2005
2006
2007
2008
2009
2011
2012
2013
2014
2015
Q1 2017
have been actively interested in the Finn-
ish property market and participated in Helsinki (Metropolitan area)
the bidding competitions, and the trend
is assumed to continue. The transaction
LOCATION KEY FACTS AS OF Q1 2017
volume also revealed a shift towards a Office transaction Prime rent
more opportunistic investment strategy, Office stock, volume, p. m., Prime yield, Vacancy rate,
City sq m. mn EUR EUR/sq m. % %
which applied for both, portfolios and Helsinki 8,633,000 247.0 12.90
33.00 4.50
individual properties. However, foreign (Metropolitan area)
investors are still mainly interested in Turku 828,300 19.00 7.25 5.90
prime properties, and the scarce supply Tampere 886,000 20.00 6.75 5.40
of suitable assets continues to be a handi- Oulu 616,400 20.00 7.50 4.60
cap limiting new operators entering the Lahti 268,800 19.00 7.50 5.50
Finnish market. This also causes diversi- Forecast 6 months
CATELL A MARKET INDICATOR | EUROPE | SPRING 2017 19France
Growing interest for value-add
TOTAL OFFICE STOCK IN PROPORTION
GDP GROWTH DECLINED slightly to in the vicinity. Most of the investment
TO TOTAL VACANCY
1.2% in 2016 from 1.3% in 2015, despite has therefore been “core”, even though
growth reaching 0.4% in the fourth the “value-added/opportunist” possibili-
quarter. Private consumption accelerated ties are also clearly there. Île-de-France
Paris on the back of dynamic household pur- is the top destination for investors,
chasing power, while investment growth accounting for 86% of all office invest-
has been boosted by anticipation of the ments in Q1 2017, with a total volume
end of the over-amortisation scheme, a of EUR 2.14 billion. Q1 2017 has seen a
fiscal incentive for firms to invest. GDP moderate consolidation regarding yields,
Lyon
growth is forecast to pick up to 1.4% in but it is likely that a slight drop will
2017 and 1.7% in 2018 under the usual occur in the second quarter, highlighting
no-policy-change assumption. Private the current massive imbalance between
consumption is expected to decelerate the volume of capital in the investment
in line with purchasing power, as the market and the reduced number of
tailwinds from lower oil prices fade products available. Office prime yield
GROWTH RATES OF PRIME RENT
out. Also, the recovery in investment is currently stands at 3.0%, only a slight
%
gaining momentum, particularly in the decrease of 15 basis points compared to
25
construction sector. Despite continued the first quarter of 2016. Despite the
20
global uncertainty, risks to the forecast rise in ten-year government bonds, the
15 for France are less tilted to the downside property risk premium remains attrac-
10 than in autumn. The improvement of tive because of its height. The real ques-
5 labour market conditions could allow for tion remains the impact of the results of
0 a more significant drop in the household the French presidential election on yields
-5 saving rate on average and thus stronger for both types of investment.
-10
private consumption. The dynamism seen in 2016 has
Paris (Greater Lyon The first quarter of 2017 has seen a continued through the beginning of
Paris Area – IDF) duplication of French office investments, 2017 in the Île-de-France office market.
2000-2008 2009-2016 2017-2020 totaling to EUR 2.5 billion. This is a With 664,000 sq m. having been com-
further positive sign of the continued mercialized, Q1 2017 has seen the best
OFFICE TRANSACTION VOLUME dynamism of the market, although this first-quarter performance in a decade.
In EUR million performance is very much related to This 27% increase compared to the
25,000 postponements from the end of 2016 first quarter of 2016 is due to a rise in
20,000
to the beginning of 2017 regarding the number of large transactions, in
finalization of deals. The market remains particular to the 86,000 sq m. “mega
15,000 focused on the most developed business transaction” in the Tours Duo, leased
10,000
districts, particularly those promising by Natixis. The overall vacancy rate in
potential rental value growth in the the Île-de-France region has remained
5,000 medium term. Higher values would be stable at 6.3%. Paris continues to post
due either to supply shortages for new or a vacancy rate of 3.4%, still below the
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Q1 2017
good quality buildings, or by the arrival average over the last ten years. But one
of better public transport connectivity should also consider the high volume of
Paris (Greater Paris Area – IDF)
Lyon (notably the Grand Paris Express project) completion of buildings that will occur
over 2017, which could have an impact
on Paris supply volumes. Prime rents
for new buildings have increased in the
LOCATION KEY FACTS AS OF Q1 2017 Source: MBE Conseil/Catella Property France Paris CBD to EUR 63.50/sq m./month.
Office stock,
Office transaction
volume,
Prime rent
p. m., Prime yield, Vacancy rate,
Prime rent will mainly remain stable
City sq m. mn EUR EUR/sq m. % % during the year, but areas with very tight
Paris (IDF) 52,238,800 2,145.0 63.50 3.00 6.30 supply have started to see sustained
Lyon 5,175,130 72.9 19.20 4.50 7.00 upward pressure on rents.
Forecast 6 months
20 CATELL A MARKET INDICATOR | EUROPE | SPRING 2017Germany
Investment volume sets TOTAL OFFICE STOCK IN PROPORTION
TO TOTAL VACANCY
new record Hamburg
GERMANY’S ECONOMIC GROWTH The German commercial property Berlin
strengthened further in 2016. Gross investment market got off to a strong
domestic product increased by 1.9% start in the first quarter of 2017 and was
Dusseldorf
after 1.7% in 2015. Private consumption able to maintain its rapid pace of growth.
Cologne
continued to increase at 2.0%. Public The transaction volume in the first three
consumption and investment rose mark- months amounted to a total of EUR 12.5
Frankfurt
edly, due largely but not exclusively billion and represents an increase of
to expenditure for refugees. Private almost 59% compared to the first quarter
investment growth was primarily driven of 2016. This is the best first quarter ever Stuttgart
by housing investment. Employment is recorded on the German commercial
expected to continue increasing but at a investment market. There was an unusu- Munich
slower pace as the labour market is close ally high number of deals between EUR
to full employment. With energy prices 50 million and EUR 100 million.
rising again, real household consumption Acquisitions in German Top 7 mar-
is forecast to slow down somewhat, but kets represent 41% of total investment
to remain relatively strong thanks to the volume in Germany in Q1 2017 com- level more owners are now willing to sell,
continued rise in employment and wages. pared to 51% in 2016. The office sector given the strong conditions and good
Overall, real GDP is expected to remains by far the most sought after asset prospects offered by the occupier mar-
increase by 1.6% in 2017, slowed down by with a share of 40% on the total German kets investors are willing to contemplate
fewer working days, and 1.8% in 2018. market and 50% share on German Top a higher degree of risk. Prime yields
7 markets. Given the current high price compressed once again to now 3.46%
with further compression expected due
to strong demand and low bond yields.
GROWTH RATES OF PRIME RENT OFFICE TRANSACTION VOLUME
The strong focus of investors and users
% In EUR million
on central modern office properties in
35 8,000 prime locations will further intensify
30 7,000 competition and lead to a corresponding
25
20 6,000 price dynamic and sustained pressure on
15
10
5,000 property yields. This development will
5 4,000 bring diversification effects to B- and
0
-5 3,000 C-category locations, without compro-
-10 2,000
-15
mising on the quality of the properties.
-20 1,000 Demand for modern office space
-25 0
-30 remains strong across all major office
2013
2015
2016
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2014
Q1 2017
Berlin Dusseldorf Hamburg Stuttgart markets. The shortage of large modern
Cologne Frankfurt Munich Berlin Cologne Dusseldorf office spaces in central office locations
2000-2008 2009-2016 2017-2020 Frankfurt Hamburg Munich
Stuttgart is forcing occupiers to consider non-
central locations for new lettings. This is
LOCATION KEY FACTS AS OF Q1 2017 particularly evident in Frankfurt, Ham-
Office transaction Prime rent burg and Munich, where a significant
Office stock, volume, p. m., Prime yield, Vacancy rate,
City sq m. mn EUR EUR/sq m. % % proportion of take-up was registered.
Berlin 17,821,700 717.0 28.50 3.10 2.70 The supply/demand imbalance is exert-
Cologne 5,964,190 280.0 22.00 3.85 6.60 ing upward pressure on prime rents and
Dusseldorf 7,577,590 152.0 26.50 3.80 7.70 increases have already taken place in
Frankfurt 10,311,190 429.0 38.00 3.60 10.60 Berlin, Frankfurt and Munich in Q1,
Hamburg 11,745,940 143.0 26.00 3.25 6.20 with further growth likely in 2017. The
Munich 13,770,910 836.0 36.50 3.10 3.50 already very low vacancy rates in most
Stuttgart 6,032,610 50.0 23.00 3.50 3.40 of the markets will decline further in the
Forecast 6 months coming quarters.
CATELL A MARKET INDICATOR | EUROPE | SPRING 2017 21You can also read
