European commercial property returns hit decade high

Figures from commercial property services provider DTZ suggest European prime commercial property will offer total return of 17.5% this year, the highest in almost a decade, and will average 6.6% over the next five years.

These levels of total return come despite uncertainty linked to Greece and the eurozone. However, DTZ said that on a relative basis property remains attractive against fixed income assets.

Its forecast for the industrial commercial property sector is for returns of 8.2% per annum over the next five years. Retail, 6.4%, and offices, 6%, will also offer strong returns over the period.

DTZ said capital values should rise at about 1.7% annually until the end of 2019.

Fergus Hicks, DTZ global head of Forecasting, said: “Despite the prolonged evolution of the Greek crisis, overall we are seeing very strong investment demand for commercial property. This is keeping downward pressure on commercial property yields and we have revised our European yield forecasts lower as a result.”]

Magali Marton, DTZ head of EMEA Research, added: “Moving forward, we expect commercial property rents across Europe to rise 4% this year and 3% next year, marking modest uplifts on the back of firmer economies. We have seen occupier demand pick up in many markets, while there is a shortage of high quality buildings, which are combining to put upward pressure on rents. Overall, we think retail has the best rental growth prospects over the next five years.”

Matteo Vaglio Gralin, associate director DTZ Research, said: “On the occupier side of the market, we expect growing economies and contained supply to push up rents in most commercial property markets across Europe. If the eurozone can successfully resolve the Greek crisis and get over the turbulence generated by it, firms should have the confidence needed to implement expansion plans and increase headcount. London offices stand out as a market where we expect double digit rent rises this year.”

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