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Occupational demand for ‘destination’ markets in Europe is apparent

in investment pricing with the largest visitor markets of London and

Paris attracting the lowest yields.

Additional features such as market transparency,

political stability, legal systems, liquidity, occupier terms

and domestic spend drivers have also had a bearing on

investor attractiveness and in turn pricing.

With this in mind we have examined 19 European cities in regards

to potential trading performance (retail spend, international visitors,

presence of HNWI, relative affluence of domestic population) and

occupier terms (average lease lengths and rent review structures)

to try and identify those markets that may prove more attractive to

investors in regards to current pricing (transaction yields).

The data model created based on the metrics detailed above,

identified London as the most attractive investment market despite

it being one of the most expensive cities to buy into, due to the size

of its retail market and its relatively attractive occupier terms for

investors/landlords (15 year upward only rent review leases being

the norm in prime locations). Amongst European markets, Paris also

featured highly as an attractive retail investment market, albeit was out

ranked by Munich. This was due in part to some unique features of

the French legal system such as ‘Loi Pinel’ (‘Loi Pinel’ grants tenants

security of tenure providing them with the entitlement to either renew

their lease at the end of the term or to receive compensation if the

landlord refuses to renew).

While Munich is a much smaller retail market than London and Paris,

its relatively affluent domestic population, attractive occupier terms

from an investor perspective and its relative pricing (prime yields are

60 basis points higher than London and Paris), enhances its potential

investor appeal. Similar factors placed Madrid and Barcelona in the

top five in terms of investor attractiveness, although recent political

uncertainty in the wake of the Catalan independence movement may

temper investor confidence in Barcelona over the short term.

Focus on European investment markets

-15

-10

-5

0

5

10

15

20

25

0%

Budapest

Lisbon

Amsterdam

Dublin

Vienna

Prague

Oslo

Barcelona

Frankfurt

Berlin

Madrid

Munich

Zurich

Copenhagen

Milan

London

Stockholm

Dusseldorf

Paris

1%

2%

3%

4%

5%

6%

Key European cities – international visitors & prime yields

Source: Savills Research; Mastercard Destination Index.

Indicative prime high street yield (%)

International

overnight visitors 2016 (millions)

2016 international overnight visitors

Q217 indicative prime HS yields

Key European cities