15
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