Europe’s undersupplied industrial sector continues to lead the field followed by its office and retail markets.


2015 saw a record amount of transaction activity in the European market. According to CBRE, the fourth quarter of 2015 saw investment activity in continental Europe tick up to €56.3 billion, an increase of more than 27 per cent over the previous quarter.

Favourable relative pricing and improving occupier market fundamentals mean investors are eager to increase their European real estate exposure. The result of such demand was that in 2015 as a whole, the average all-property prime yield for continental Europe compressed by around 60 basis points to 4.4 per cent.


Continental European office markets continued to see steady improvements in occupier market conditions thanks partly to a dearth of new developments. CBRE’s Prime Eurozone Rent Index estimates that office rents grew by 1.8 per cent in the last quarter of 2015 buoyed by markets such as Dublin and Barcelona where rent increases topped eight per cent in 2015. Meanwhile, investment into the sector jumped by more than a third to €26.1 billion in the fourth quarter with the Nordic and Benelux markets seeing especially marked volume increases. This helped to drive a decline of around 60 basis points in yields over the course of 2015. Further, but slower, yield compression is expected in 2016.

Retail properties

Now that euro-zone consumers are becoming more upbeat about their finances, retailer confidence is improving. European retail rents continue to increase faster than other sectors with CBRE estimating that retail rents rose 1.3 per cent in the last quarter to deliver an annual increase of 7 per cent. With €12.8 billion of new investment in the last quarter, annual investment levels were up 44 per cent and yields compressed by around 45 basis points. We see scope for further rental growth in prime markets as the polarisation between winning and loosing retail locations continues. 

Industrial properties

Industrial rents rose 1.5 per cent in the last quarter of 2015 to record annual growth of 2.9 per cent over the course of the year. As retailers increasingly compete based on their supply chain capabilities, they are willing to pay higher rents.

Investment volumes jumped just over 50 per cent in the fourth quarter. Such demand helped to drive an additional nine basis point tightening in prime yields in the last quarter leaving them around 90 basis points lower over the course of the year. 

Still attractive despite repricing

Since early 2015, the rate of decline in property yields has accelerated, reflecting the continued attractiveness of continental European real estate. Although the unprecedented monetary stimulus released by the European Central Bank will continue to support asset class, Europe’s economy remains fragile.

Despite the capital growth that has taken place in recent years, continental European real estate remains attractively priced. Late cycle risks are more prevalent in other developed markets.

Our forecast for prime all-property total returns in continental Europe is 5.8 per cent per annum between 2016 and 2020. Within this we expect to see industrial assets outperforming, with the markets of Belgium, the Netherlands and France looking especially attractive on a risk-adjusted basis.

We expect rental value growth to be strongest in retail markets, especially in Ireland and Spain, although elevated levels of supply mean that the Irish and central European office markets are likely to see the weakest returns.

Important Information

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (“Aviva Investors”) as at 11th March 2016.  Unless stated otherwise any views, opinions and future returns expressed are those of Aviva Investors and based on Aviva Investors internal forecasts. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Some of the information within this document is based upon Aviva Investors estimates. These have been calculated by Aviva Investors Real Estate Strategy and Research Team based on data sourced from recent market transactions and should not be relied on by anyone else for the purpose of making investment decisions. Aviva Investors Global Services Limited, registered in England No. 1151805. Registered Office: St. Helen’s, 1 Undershaft, London EC3P 3DQ. Authorised and regulated in the UK by the Financial Conduct Authority and a member of the Investment Association.

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