According to the latest research from Savills, the London City and West End, Paris and Warsaw office markets are the most affordable in Europe this year due to the opportunity for yield compression and / or attractive yield spreads relative to at risk-free rates.
Office vacancy rates increased an average of 170 basis points to 7.1% in European markets in the year ending Q1 2021, due to the level of gray spaces returning to the market , indicates the international real estate advisor. However, occupant sentiment has improved since January and there are more and more examples of occupants removing gray spaces from the market, a trend that could accelerate throughout the remainder of the first half of 2021 as businesses are starting to look at life beyond the pandemic. According to Savills, investors continue to seek long-term income in non-strategic markets and are more price sensitive to the strength of the agreement with tenants. Since the third quarter of 2020, Warsaw prime yields have fallen by 10 basis points to 4.6%, although Prague (4.10%) and Bucharest (7%) have remained stable.
Unlike many business centers in Western Europe, office rents in Warsaw have not changed significantly for almost ten years, while inflation itself has exceeded 20% during this period. In terms of investment, the compression of yields that has taken place in previous years has resulted in relatively low growth in the capital value of office buildings in Warsaw, while rents have not changed significantly, compared to offices in other Western European cities. As a result, the capital values of office buildings in Warsaw appear attractive, while the risk of price adjustments may be lower than in other European locations.
Michał Stępień, Investment Partner at Savills