The most notable feature of last quarter’s survey was the considerable incidence of yield improvement, with prime yields edging lower in 20 office and retail locations. Examples included the City of London office and West End retail as well as other major markets, including Dublin, Geneva and Prague. As a result office and retail yields in the EU-15 as a whole dropped slightly. Yields for industrial property rose by a marginal 4bp mainly because of yields drifting out in Madrid, and despite significant improvements in Dublin and Birmingham.

Over 1Q13 as a whole, rents increased in more locations than declined, but the predominant picture was one of rental stability. Rents rose in the prime retail sector, were effectively flat in the office market and edged down slightly for industrials. Notably, the EU-15 Prime Retail Rent Index is now nearly 7% higher than a year ago. The slight quarter-on-quarter rise in the EU-15 Retail Rent Index was largely underpinned by growth in several of the German markets, particularly Hamburg. In the office market, rental growth in a number of northern European markets – including Berlin, Oslo and London’s West End – contrasted with further falls in Madrid, Barcelona and Milan. Few industrial locations saw any rental change.

Richard Holberton, Director, EMEA Research, CBRE, commented: “Property investment activity across Europe picked up in the first quarter relative to the same period last year, and investors’ focus on core assets and markets is clearly driving yield improvements at the prime end of the market in some locations. Rental movements in first quarter were both more limited and more evenly split between increases and declines. This reflects the continuing uncertain economic picture, and it is notable that several of the largest rental declines were observed in southern European markets. By contrast, the near 7% rise in prime retail rents over the past year further reflects the concentration of retailer appetite on the best prime retail pitches.”

In a separate report, CBRE said total returns in recovering prime commercial real estate markets across Europe should exceed those of ‘safe havens’ over the next five years. 2013 should be an 'inflection point' for several markets, driven by improving economic fundamentals and investor sentiment. It forecasts that better performing recovering markets will produce total returns of 9% per annum or more over the next five years, exceeding the 3%-8% returns likely to be available from ‘safe haven’ markets. Investors with the mandate and appetite to take on incremental risk are therefore likely to become more active in recovering markets.

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