Catella European Office Market Chart Q1/2023

Dear readers,

With momentum into the new year? Yes, that can be said at least in part. Because a rather rare market constellation is currently evident: prime rents on the European office markets have continued to rise, while purchase prices, expressed in yield ratios, are falling across the board.

After almost 8 months of interest rate turnaround, the asset class office is showing a clear decline in transactions on the average of the 39 office markets we cover in Europe. The macroeconomic turmoil in Europe in 2022 was reflected in the trends in transaction volumes, down 16.7% year-on-year to around €97 billion and 5.3% below the level seen in the pandemic year of 2020. The 10-year average was undercut by a significant 13% in 2022, impressively illustrating the dynamic phase of upheaval initiated in the past year.

In summary:

• Office rents on an upward trend: The average prime office rent for all 39 markets surveyed is €37.61/m², which represents an increase of 9% compared with our last analysis.
  
  
• London at the top: The most expensive office market is clearly London's West End with a prime rent of €141/m². The lowest prime rents can be observed in the Baltic cities of Vilnius, Riga and Tallinn with an average of 18.70 €/m². However, with €19/m², the Finnish market of Lathi also has a low prime rent level by European standards.
  
  
• Prime yields on the European office property market show a measurable upward trend. The average for prime yields across our 39 markets under review is 4.46%. This represents an increase of around 50 basis points compared with our analysis from last year.
  
  
• Germany still an expensive market: In a European comparison, prime yields in the office markets of the German top 7 locations can still be classified as low. None of the top 7 German markets shows a prime yield of more than 3.5%. Stockholm, Vienna, Milan and Paris join the list of locations at or below the 3.5% threshold.
  
  
• No decline in prime yields and prime rents expected on the European office property market in the first half of 2023. Except for three locations (Düsseldorf, Oulu & Tampere), we expect an upward trend in prime yields in the first half of 2023. For 17 locations, we further expect an increase in the level of prime rents during the first 6 months of 2023. For the remaining 22 markets, we see a stagnation in the level of prime rents during the first half of 2023.

Enjoy the analysis !

Prof. Dr. Thomas Beyerle

To the Catella European Office Market Chart Q1/2023 (high resolution)