Yields of under 4 percent and of 3.5 percent are expected for office and retail real estate respectively if the European Central Bank’s follows through with its planned acquisition of government bonds, according to a white paper published today by Patrizia Immobilien.
The paper from the German-based real estate investment company says the price level of commercial real estate as well as demand will increase, causing yields to decline to record lows.
The recent trend of rising rents and vacancy stagnation for office real estate in Europe will continue, says the paper. “Notably, the strong cyclical fluctuations we were familiar with in the past hardly exist anymore,” commented Marcus Cieleback, group head of research at Patrizia. “It appears as if the classic relationship between rent and vacancy currently no longer applies.”
Patrizia’s paper says investment strategies must now be reviewed and more heavily oriented towards value added-style risks and returns. However, the paper adds that an outflow of capital from core real estate in both the office and retail segments is not expected.
The paper also says real estate investors must view Europe as individual countries and not as a whole. As an example of the inter-country differences it noted that the gap between disposable incomes among European countries continues to widen. “For example, in countries such as Italy and Portugal disposable income fell by around 7 percent, whereas in Finland and Belgium it rose by around 10 percent,” said Cieleback.
“Due to uneven development in the various regions, there will be no homogenous European commercial real estate market to speak of over the next few years,” Cieleback added.
Patrizia is a publicly listed real estate investment company with headquarters in Germany with a focus on European investment strategies. The company covers the entire real estate value chain (research, acquisitions, fund/asset/property management, exit/sales strategies) with its own specialists.