European yields show signs of converging again
05 October 2011
According to Savills European data, the average yield gap between prime and secondary offices has compressed by approximately 18 basis points over the past twelve months and now stands at 89.5 basis points. This, the international real estate advisor states, follows a high point in January at which the average yield gap between prime to secondary yield was 91.3 basis points – the highest since 2005.
The data suggests that of the 20 CBD locations surveyed, the widest yield gaps exist in London’s West End, Madrid and Brussels office markets – all exceed 100 basis points. London sees the strongest polarisation with 225 basis points.
Lydia Brissy, European Research Director, says: "In the peak of the cycle we saw an average prime to secondary yield gap of 59.7 basis points in the office market. With some cities now experiencing a movement to over 100, and London’s West End at 225, investors’ strong appetite for prime assets is evident."
Savills suggests that a lack of prime investment opportunities has led to increasing interest in good secondary stock, causing this convergence. Secondary office yields in Europe range from 4.70% to 9.75% with the most significant inward yield movement recorded in Stockholm, Warsaw and Milan.
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