Green Street index: European property prices fall 1% as bid yields widen

Green Street's European Commercial Property Price Index fell 1% in the quarter, with widening bid yields weighing on pricing in most commercial property sectors, the research firm said in a release dated 8 October.

Of the four sectors Green Street quantified, industrial fell the most at 2.1%, followed by residential at 2.0%, self-storage at 1.9% and office at 1.7%. Data centres, retail and hotel, by contrast, are "holding tight" on solid net operating income growth, the release says. The declining sectors are ones where "mixed fundamentals can't fully offset the effect of higher cap rates," according to the release.

Bond and equity market movements in recent weeks "are not encouraging" and have already fed through to bidding, the release says. "The past few weeks offered no reprieve for private investors looking for evidence of bid prices holding firm," Marie Dormeuil, a senior analyst at Green Street, said in the release. She added that conditions in the equity and debt capital markets "have started flashing amber."

Dormeuil said investment volumes could still settle above last year's as deals agreed before August close, but incremental price discovery is likely to stall during the fourth quarter.

The index tracks unleveraged property values across 30 of the most liquid European markets and seven sectors. Green Street says it captures the prices at which commercial real estate transactions are currently being negotiated and contracted, with an emphasis on average institutional-quality properties, making the quarterly reading a gauge of live bids rather than closed comps.

A 1% quarterly decline is modest next to the same firm's Canadian index, which rose 0.1% in the second quarter and sat 0.1% below its year-earlier level, with scarce supply keeping the tape flat, as this publication reported in September.