A short version of the state of the European office investment markets would currently read: "Recovery, but". After almost two years of the pandemic, the office asset class is proving to be largely resistant to the crisis, but then comes the "but". At around €87.5 bn, the transaction volume in Europe in 2021 was up on the previous year (+4.1%), but still lags the pre-pandemic period (-28.2% vs. 2020, -15.3% vs. the 10-year average).
This year, we included Vienna in the analysis because we only document values for locations in which we are represented with a branch or investments of our Catella Group. Our comparative map of the - now 39 – examined office markets, some interesting aspects can be shown:
- Stable office rents: The average prime office rent for all 39 markets surveyed is almost unchanged at €34.74/m², which represents a decline of around 0.2% compared to our last analysis.
- London at the top: The most expensive office market remains London West End at 102.50 €/m². The lowest top rents are unchanged in the Baltic cities of Vilnius, Riga and Tallinn averaging 17.50 €/m².
- Changed dynamics: The dynamics of yield compression have visibly weakened in recent years. Nevertheless, compared to the previous year, a decline in net prime yields in the office sector of around 20 basis points to a value of 4.01% can be observed.
- Germany remains "expensive": The lowest yields, which are also the most expensive investment markets in Europe, continue to be found in the German top 7 markets as well as in Paris, where yields are all below the 3% mark.
- Sideways movement, but momentum in the prime segment: Despite the continuing uncertainty regarding the Covid 19 pandemic and the associated space considerations around home offices and hybrid forms of work, we do not see any declining rents in the individual office markets until the end of the year and expect a stagnant level for the most part. In the smaller prime segment of new construction/first occupancy/CBD we expect rents to rise.
- Price increase slow down across all markets: In terms of net prime yields, the continued high demand for office properties is causing the yield level to move sideways on average in Europe. We expect a stable level for 24 of the 39 markets analysed, whereas slight compression can be assumed for the other 15 office locations.
As you can see: If you compare the 39 European locations, the markets offer much more impressive diversification opportunities than in the years before the pandemic. These will certainly become even more differentiated when the effects of so-called remote working are successively manifest themselves on the local office markets. From this perspective, Europe currently offers a very heterogeneous picture that covers everything from "only two days in the office" to "like before Covid".