The UK remains the most-expensive European country for occupiers of prime business space – with rents at €1,332 per sq m for offices and €182 per sq m for industrial space – according to the latest Euro Cities research from Gerald Eve.
The research – launched today at MIPIM, and drawing on the data of the 20 European members of Gerald Eve’s international alliance – reveals that prime UK office yields are currently at 3.5%, and 3.5% for industrial. Only France and Germany have lower prime office yields, with both at 3%, and no European country is recording industrial yields at the lows seen in the UK.
But while the UK has been at the vanguard of revolutions in online retail and flexible workspace, the potential growth for such sectors in Europe could see a narrowing of the affordability gap as take-up rises in line with demand across the continent.
Patricia LeMarechal, partner at Gerald Eve, said: “There has been growth in the online retail sector – to the detriment of physical stores – across Europe, and this has fed into growth of industrial and logistics markets, especially ‘last mile’ locations close to urban centres. Similarly, the growth of serviced offices has been one of the main drivers of office take-up over the past year.
“But while these trends are common to most countries, the UK has been ahead of the curve in embracing these new ways of working and shopping, and this is reflected in the prices being commanded for property in these sectors, both from an occupational and investment perspective. This means there are opportunities in continental Europe as these trends continue, but also in the UK where such markets are arguably more resilient.”
The weak growth seen in the European economy – embodied by Germany, which came close to falling into recession in the second half of 2018 – has kept a lid on rents across the continent. Prime office rents in nearly every country are less than 50% of those seen in the UK, with only France (€780 per sq m) and Ireland (€700) above the threshold.
A similar picture appears for prime industrial property, with only Norway (€127 per sq m) joining the UK above €100. Countries including Portugal (€45 per sq m), France (€46) and Slovakia (€48) have prime industrial rents that are only around a quarter of that seen in the UK.
Patricia LeMarechal continued: “In contrast to 2017, when improving economic performances across Europe saw upward pressure on office and industrial rents, the overall picture last year was one of sluggish activity and rents and yields at a standstill. This is, in part, due to the political uncertainty that has defined the year, but also suggests property markets where supply and demand are broadly in sync. In addition, it shows that, while Brexit is undoubtedly having an effect, relocations due to the UK’s imminent departure from the EU are lower than predicted.
“The ongoing strength of the UK – both in terms of headline rents that are way ahead of those seen elsewhere, and prime yields that remain at historically low levels – is indicative of the fundamental strengths of the economy and investor confidence in its ability to ride any Brexit-related uncertainty or disruption. The apparent mismatch between supply and demand also suggests a lack of the development exuberance that characterised previous cycles, and leaves the UK less exposed to changing occupational requirements.
“What the research also highlights is the need for genuine on-the-ground insight. The report shows that a rent or yield that is cheap in one market would be considered expensive in another. The value of Gerald Eve’s international alliance can bee seen in both this research and the advice that clients have access to through these partnerships.”