The value of commercial property has risen for the first time since mid 2022 in Europe, although the UK office market bucked the trend and failed to show gains.
Overall, property values rose by 0.63 per cent in the third quarter of 2023, following eight consecutive quarters of decline.
European property prices have been hit hard by high interest rates over the last few years, with investors searching for hard-to-find returns.
But the third quarter finally saw “green shoots” in the market, according to analysis by property intelligence firm Altus Group.
“While a measured amount of recovery has been evident for the past few periods, the third quarter marked the first time in two years that the movement in values turned positive across all commercial property types,” Altus said.
The leading sector was retail, with values up 1.26 per cent over the quarter. Investors were buoyed by growth in essential goods like supermarkets, as well as shopping centres, Altus found.
Savills have forecast that year-end investment volumes for Europe will reach around €170bn (£141bn), an 18 per cent increase on the previous year.
UK office market gets a battering
European office values rose by 0.5 per cent in the third quarter, but fell by 2.6 per cent in the UK.
While demand for office space in London returned to pre-Covid level in 2023, the prime regional office yield gap to central London is at its widest level in over 30 years, according to Savills.
In London, recent data shows that demand for sustainable office buildings has been the main driver of office take-up in the city this year, with over half of lettings in buildings with excellent or outstanding environmental ratings.
Sustainable office buildings are generally more expensive, higher quality, and attract longer-term tenants.
The change presents a “real shift in the commercial property landscape,” Graeme Dick, Principal Consultant from procurement consulting firm Proxima said earlier this year, adding that we’re approaching “milestone years” for the sector.
However, Savills has suggested that the regional office market in the UK faces a lack of available best-in-class space – and while it has presented the discount regional offices offer as a “generational opportunity”, it has suggested the trend is likely to continue.