European commercial property is set to deliver total returns of 19% this year, the highest since 2006’s 25%, according to Cushman & Wakefield.
In its quarterly forecast covering 121 European markets the agent said that despite the world economy losing some momentum in September, confidence in European real estate remains high.
“The low interest rate environment, European Central Bank Quantitative Easing and strong investor interest are keeping commercial property yields under downward pressure,” said C&W.
“However, slower yield compression means that European all property returns are predicted to slow to 9% in 2016.”
Industrial property is expected to be the best performing sector due to its higher yield and income return.
Looking at individual markets, Dublin retail is forecast to deliver the highest return in 2016, of nearly 30%, as strong investor interest pushes yields below 4%, while a confident consumer sector of the economy sees rents rise 17%.
The other top performers for 2016 include Dublin offices, with returns of 16% predicted, Warsaw retail (15%), London City offices (15%) and the Madrid and Barcelona office and retail markets (all 14%).
“Ongoing low interest rates are seeing sustained high levels of investor demand for European commercial property and yields remain under downward pressure,” said Fergus Hicks, associate director at C&W Research.
“In many markets we expect yields to fall further next year, but by year-end we expect yields to be levelling off. Overall, we think European commercial property returns will remain healthy in 2016, although slow from 2015.”
C&W expects commercial property rental growth to remain modest in 2016 with most European economies showing positive, albeit unspectacular, growth.