Among the most attractive investment options in Europe is the Athens office market, while the crisis in commercial real estate continues internationally, according to data presented by BNP Paribas Real Estate in a report.
On the European commercial property map, the Athens market stands out despite its small size. Yields are high and the proportion of vacant space is low, offering a stable solution in a sector under severe pressure from rising interest rates and the spread of teleworking.
According to BNP Paribas Real Estate, the yields recorded on high-end office space in Athens are as high as 6%, compared with 4.1% in Rome and 4.5% in Lisbon.
It is worth noting, however, that yields in other European capitals are moving upwards as inflation and the change in monetary policy by the European Central Bank (ECB) change the market fundamentals, namely the level of rents and property prices.
In Q1 2023, the year-on-year change in yields in Amsterdam was 120 basis points, while in Milan and Madrid yields strengthened by 100 basis points.
Despite the completion of new green projects, the index of vacant space nationwide remains low. In Athens, the corresponding index stands at 4%, compared to a rate of 12% in Barcelona, 8.7% in Rome and 13.1% in Budapest.
"The overall office vacancy rate in Europe stood at 7.4% in Q1 2023 (+20 bp vs Q1 2022)," underlines BNP Paribas Real Estate.
"Most markets show stability, however an increase in office vacancies was recorded in Barcelona (+300 b.p. vs. Q1 2022) and Dublin (+210 b.p.) where there was a large increase in new office buildings completed in 2022. Most markets consist of two-tier dynamics, with low availability in central locations and new buildings, and much higher vacancy rates in peripheral office areas," says the report.
Distant buyers and sellers
At the same time, the overall investment climate in the industry remains challenging, as both buyers and sellers have pulled out of the market.
In 2023, investment in commercial real estate fell to €219 billion in Europe, reaching its lowest point in the first quarter of 2021. Overall, between Q1 2022 and Q1 2023, investment fell by 60%. All asset classes experienced a large decline.
"Logistics was most affected (down 71%) as prices were already high before problems arose. Offices also suffered (-66%) as complex pricing adds to the difficulties in a sector where structural change appears to be underway. Hotels (-21%) and retail (-37%) saw the smallest drop in investment," the report concludes.
Prices to continue to fall in 2023
For the rest of the year, experts stress that the decline in office property values in Europe is expected to continue. In Europe, office prices have fallen by up to 33% in the last year, claims consultancy JLL.
"We appear to be almost two-thirds of the way through the price correction in Europe, although this varies significantly by market, suggesting that the price decline for high-end properties is likely to be complete by Q4 2023," JLL points out.