London, Paris and Warsaw offices ‘provide best value for investment in Europe’
European office property investors will get their best value for money on acquisitions this year in London, Paris and Warsaw, new research has found.
According to Savills, office blocks in the three cities are the most attractively priced in Europe owing to positive prime rental growth prospects, the opportunity for yield compression and attractive yield spreads to risk-free rates.
Office vacancy rates have increased to 7.1% across European markets over the past year, as a result of the level of grey space returning to the market, the agency said.
European office property investors will get their best value for money on acquisitions this year in London, Paris and Warsaw, new research has found.
According to Savills, office blocks in the three cities are the most attractively priced in Europe owing to positive prime rental growth prospects, the opportunity for yield compression and attractive yield spreads to risk-free rates.
Office vacancy rates have increased to 7.1% across European markets over the past year, as a result of the level of grey space returning to the market, the agency said.
However, occupier sentiment has improved since January, and there are more examples of occupiers removing grey space from the market. This could gather momentum throughout the summer as businesses begin to contemplate life beyond the pandemic, it added.
Mike Barnes, European research associate at Savills, said: “Savills’ Q1 2021 European Office Value Analysis indicates that of the 23 European office markets we monitor, London West End appears undervalued, 16 markets are fairly priced and six markets now appear fully priced.
“London is at a discount to mainland European core markets, as West End yields remain at 3.5% and City yields at 4%. While Paris CBD yields remained stable at 2.75% during the first quarter, Warsaw prime yields have moved out by 10bp to 4.6% since Q3 2020 and we expect these to harden again over the next 12 months.”
Chris Gillum, head of offices regional investment advisory EMEA, added: “Occupiers’ behavioural changes and the speed of return to the workplace will act as the main determinants for rental growth prospects across the major European markets.
“Despite an increase in vacancy rates, high-quality vacant office space remains limited in the core Western European markets. Should rental growth prospects improve in the coming months as we expect, then the markets currently shown as fairly priced will become underpriced, becoming even more attractive to investors.”
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