Prime retail yields slowly bottoming out
With more market players and a wider range of assets available on the retail investment scene, evidence of prime yields starting to bottom out is becoming clearer. Prime retail warehouse yields are leading the recovery, with average yields compressing steadily from the beginning of the year. Logistics yields began to compress in Q2, with multifamily yields following suit in Q3. Meanwhile, luxury high street yields have stabilised this quarter, and prime office yields are plateauing. By contrast, shopping centre yields remain out of sync with the recovery, still experiencing softening.
In Q3 2024, the European average prime retail warehouse yield settled at 5.9%, reflecting a 4 bps decrease year-on-year. Similarly, mass-market high street yields also compressed by 4 bps annually, reaching 5.2% in Q3 2024. Luxury high street yields remained stable at 4.4% compared to the previous year, while the European average prime shopping centre yield increased by 9 bps annually, standing at 6.3%.
Despite these slight yield compressions, and while the premium of retail yields over office yields has narrowed, prime retail yields remain highly attractive and competitive. Looking ahead, improving economic sentiment and a strengthening retail occupational market are expected to continue driving investor interest in retail assets. We anticipate gradual but consistent yield compression across Europe next year, particularly for retail warehouses and high-street properties. Additionally, the rising number of institutional funds seeking large lot sizes is likely to spark renewed interest in prime shopping centres and help stabilise yields in that sector.
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