EXPO REAL 2016: Brussels and Dublin are among the continental European cities to offer better value to investors than world cities such as Singapore, San Francisco and downtown New York.
According to Savills’ European Cities report, they are regarded as safe jurisdictions and offer higher yields, even when risk-adjusted, than other locations.
Marcus Lemli, head of European investment at Savills, said: “Clearly, many investors are not expecting low, or even negative, bond rates to persist, but still some cities are pricing real estate at a more substantial discount to bonds than others.
“On this basis, it looks reasonable to say that some European cities, notably Brussels, Dublin, Berlin and Frankfurt, have further scope for yield compression and that capital growth prospects therefore remain strong. Meanwhile, London, Warsaw and Madrid, in common with other world cities, look more fully valued due to recent capital growth and yield compression.”
However the majority of international investors have avoided investing in euro-denominated assets post-2008, largely choosing to place capital to the UK instead.
In Europe, London attracted 23% ($41bn) of the cross-border capital flowing into the region in 2015, while Paris, its nearest rival, picked up just 6% ($10bn).
Yolande Barnes, director of Savills world research, said that for investors that are willing to accept, or hedge, currency risks, European city markets can provide an opportunity and present good value on the world stage, particularly to income investors.
She said: “The investment giants of London and Paris have attracted large amounts of cross border capital to date, but the fundamentals of underlying occupier demand are strong and European cities are in a good position to compete for companies and workers looking for a home.”
| Net effective yield | 10-year government bonds (7/9/16) | Net of bonds effective yields (NOBEYs) | |
|---|---|---|---|
| Brussels | 5.23% | 0.11% | 5.12% |
| Dublin | 4.75% | 0.37% | 4.39% |
| Berlin | 3.90% | -0.12% | 4.02% |
| Frankfurt | 3.76% | -0.12% | 3.88% |
| Tokyo | 3.30% | -0.06% | 3.36% |
| Paris | 3.12% | 0.16% | 2.96% |
| Singapore | 4.27% | 1.68% | 2.60% |
| World city average | 3.75% | 1.17% | 2.58% |
| Madrid | 3.46% | 0.92% | 2.54% |
| San Francisco | 3.65% | 1.53% | 2.12% |
| Sydney | 3.80% | 1.82% | 1.98% |
| London City | 2.54% | 0.67% | 1.87% |
| Warsaw | 4.60% | 2.78% | 1.82% |
| LA Downtown | 3.29% | 1.53% | 1.76% |
| London West End | 2.42% | 0.67% | 1.75% |
| New York Downtown | 3.11% | 1.53% | 1.58% |
| Shanghai | 4.36% | 2.81% | 1.55% |
| Hong Kong | 2.36% | 0.90% | 1.46% |
| New York Midtown | 2.67% | 1.53% | 1.14% |
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