London City, Stockholm, London West End, Manchester, Lisbon and Oslo office markets appear underpriced, according to Savills European office value analysis Q2 2020 (see below).

London and Manchester appear cheap, even compared with respective pre-GFC (global financial crisis) prime yields, whilst many of mainland Europe’s office yields remain below their pre-GFC nadirs. This trend is particularly evident since the UK voted to leave the EU in 2016; Europe (excluding the UK) average office yields have moved in an average of 76 bps, whilst UK office yields have remained stable during this time. London also offers the best rental growth prospects as highlighted above.

Lisbon and Oslo appear underpriced partly due to falling Portuguese and Norwegian bond yields over the last 6–12 months. Lower levels of future inflation in Portugal will also maintain real rental growth over the forecast period.

Given that European offices are at a late stage of the investment cycle, there is less scope for the levels of yield compression we have observed in recent years and we see the majority (15 of 23) office markets appear fairly priced at end Q2 2020, despite more limited rental growth prospects. Record low sovereign bond yields will continue to maintain prime offices’ investor appeal, as multi-asset managers seek to increase their exposure to real estate.

_{Read the articles within European Office Value Analysis below.}