Positive capital value performance continued in Europe, albeit at a slightly slower pace than seen in Q2 2018. The All Property Index moved up (+1.0%) on the quarter vs (+1.2%) the previous quarter, driven by value growth in Germany, The Netherlands and Benelux.

The Industrial sector was once again the leading performer, with value growth of 2.9% in Q3. Offices saw the next largest increase: rising by 1.1%, although modest in comparison to last quarter’s 1.7%. Retail recorded a negative capital value change standing at -0.2%. Industrial values benefitted mainly from yield compression, although rental growth also contributed.

Over the quarter, the retail sector under-performed at -0.2% in accordance with the previous quarter Q2 2018 (-0.6%). Behind the headline figure it is notable that the Shopping Centre sub-sector saw the weakest value performance (-0.3%). That tendency is mainly driven by the CEE countries (-1.9%), The Netherlands (-1.4%) and UK (-1.3%).

All Property values rose by 0.3% in the UK on the quarter which followed the same trend as the preceding quarter Q2 2018 (0.6%) but was significantly slower than Q4 2017 (1.9%). Retail is one of the main drivers of this downturn, specifically the Shopping Centre sector.

On an annualised basis, the CEE countries continued to grow at 3.1% vs 2.9% Q2 2018, a significant increase compared to Q1 2018 at 0.3%. Overall, all the countries rose at a slower pace except for the Netherlands 9.4% vs 8.5% and Benelux 5.8% vs 4.4% (all year on year).

Grouping equivalent yields into quartiles, we see that there was yield compression across all quartiles. The European market is continuing to see yield compression across most asset types. This is likely to be a sign of the limited availability of top quality assets along with the historically low interest rates.