CBRE: Office yields drop slightly

According to the office market analysis of CB Richard Ellis for third quarter 2006, yield on first-class office space has slowed throughout Europe. In the EU-15 countries studied by CBRE, the average yield of first-class offices fell by just 0.02% from the second quarter to the third to reach 5.03%.

In the majority of EU markets, yields have remained firm, unlike the first six months of the year, when average yield of first-class offices fell by 0.25%.
“There might be several explanations for the decrease. The most important factors are the rise of interest rates and related financial costs,” said CBRE European research leader Michael Haddock. “Higher interest rates might bring worries of whether current prices can be kept in the long run.”

Added CBRE analyst Anna Starczewska, “As a result of the quantity of money competing for properties, a further slow decrease of first-class office yield is expected in the short run. The recent rise of interest rates, however, shows that there is no reason to fear a considerable fall in yields in the near future.”

In the third quarter of 2006, a further increase of demand was registered in the office rental market: The total rented office area in the 15 largest cities of the EU-15 countries was 17% higher than in the same period of the year before. The healthy demand for office areas resulted in a decrease of vacancy rate and a rise in rental fees in several markets.

The effect of the balance between supply and demand on the rental fees can be clearly seen. During the third quarter, first class rents increased in ever more markets, which means this tendency of improvement can be observed in more of Europe than six months ago.