The average yield gap between prime and secondary office properties has converged by some 18 basis points over the past year and now stands at 89.5 basis points, according to new figures released by real estate adviser Savills.
The widest yield gaps within the 20 central business districts featured in the survey were found in Madrid, Brussels and London’s West End. In all three areas the yield gap exceeded 100 basis points, with the highest polarisation found in London with 225 basis points.
The new 89.5 basis point-high marks a slight decline from January 2011 when the average yield gap between prime and secondary offices hit a six-year high of 91.3 basis points.
Despite the evident demand for prime assets displayed by the yield gap for London, Brussels and Madrid, Savills forecasts continued demand in the secondary sector. The report suggests lack of prime investment opportunities has led to increasing interest in good secondary stock, causing the yield gap to narrow since January.
Secondary office yields in Europe range from 4.70% to 9.75% with the most significant inward yield movement recorded in Stockholm, Warsaw and Milan.
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