Research article

Yield divergence

Prime CBD office yields remain stable, as logistics pricing intensifies and retail yields move out


European average prime office yields have held stable during the period Q1–Q3 2020 at 3.60%. However, we are beginning to observe a divergence in yield movement between core and non-core markets.

During the Q1–Q3 2020 period, prime office yields have compressed across Oslo (-40 bps), Milan (-25 bps), Paris CBD (-15 bps), Stuttgart (-10 bps) and Hamburg (-10 bps). However, Warsaw (+40 bps), Manchester (+25 bps), La Défense (+25 bps) and Helsinki (+10 bps) moved outwards. Investors are demonstrating additional caution due to the heightened financing, occupational and liquidity risks across non-core locations.

We have also observed a minor outward movement of 2 bps for average secondary CBD office yields to 4.43% over the last six months- the impact of Covid has not been widely observed thus far. This is perhaps as a result of low vacancy rates across core markets, and asset management upside already being priced in on secondary assets. Manchester (+25 bps), Helsinki (+20 bps) and Amsterdam (+15 bps) secondary offices all moved out, although Oslo (-15 bps) and Munich (-10 bps) compressed, following the trend in prime, and supporting the shift to core cities.

Open-ended funds continue to receive net inflows with allocation targets by year-end, and many of the German funds are similarly focussed on low risk, core German cities. German banks are willing to lend to core top seven cities at similar LTVs (loan-to-value ratios) as during pre-Covid, with similar debt costs.

Banks are increasingly cautious at lending cross-border and non-core countries’ secondary offices with shorter income or rental upside could observe minor corrections in pricing

Savills European Research

German banks’ willingness to lend on core-plus/value-add German offices, now extends to circa 50–55% LTVs, with higher than pre-Covid debt costs. However, banks are increasingly cautious at lending cross-border and non-core countries’ secondary offices with shorter income or rental upside, could observe minor corrections in pricing. Into Q4 2020 and early 2021, we anticipate secondary stock in core CBD markets to remain stable and even potential for prime German stock to harden throughout the year, due to the shift to a more core strategy.

The main question among core investors remains over the speed of workers’ return to offices across Europe and the tweaks to rental growth assumptions over a five- to ten-year period. We anticipate more visibility over this once a vaccine has been approved and is distributed, although evidence of tenant incentives increasing and tenant controlled office supply returning to the market are being observed.


The European logistics sector continues to shine through amid times of adversity, where we have observed average prime yield compression over the last six months of 7 bps to 4.84%. Compression was observed within the Czech Republic (-25 bps to 4.25%), Germany (-20 bps to 3.5%), Norway (-30 bps to 4.25%), the Netherlands (-15 bps to 4.10%) and Spain (-30 bps to 4.85%). Finland prime logistics moved out 10 bps, in line with the trend observed in the office sector.


Consumer confidence again dropped in October from -13.9 to -15.5 as a result of reinstated lockdowns and gloomier sentiment over the economic outlook, hindering planned retail expenditure. Despite the extension of a number of Europe’s furlough programmes and increased eurozone household savings ratios during Q2 2020 to 25% of income, the potential for a consumer bounceback appears limited. The retail sales rebound has of course been supported to some extent by online activity, as consumer footfall still remains markedly down on pre-Covid levels.

High street retail yields moved out across a number of markets between Q1–Q3 2020, with average prime yields moving out 15 bps. Amsterdam (+25 bps to 3.75%), Dublin (+50 bps to 4.25%), Helsinki (+50 bps to 5.00%), Lisbon (+25 bps to 4.00%), Milan (+25 bps to 3.25%), Oslo (+15 bps to 4.55%) and Paris (+50 bps to 3.00%) all moved out during this period. German high street yields have remained stable during this period, in line with London Bond Street.

Average European shopping centres prime yields moved out 27 bps between Q1–Q3 2020 as a result of the pandemic and falling shopper footfall. German top seven markets have moved out by 70 bps over the last six months to 5.00%, comparable with London’s outward movement to 6.75%. More modest outward movement has been observed in Dublin (+50 bps to 5.5%, Helsinki (+45 bps to 4.8%), Lisbon (+25 bps to 5.00%), Madrid (+25 bps to 5.00%), Milan (+15 bps to 5.4%), Oslo (+15 bps to 5.15%) and Paris (+25 bps to 5.00%). CEE markets, Warsaw and Prague both remained stable, given lower online retail penetration levels and more reliance on shopping centres for retail.

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