Prime rental growth across Europe has accelerated as demand for the best-in-class space holds firm, according to Cushman & Wakefield’s latest DNA of Real Estate research report.

The report, which examines trends in prime rents and yields across Europe, highlights a divergence between occupational and investment markets in Q4 2022.

At the prime end, occupational indicators remained resilient with the average growth rate for key office markets tracked across Europe accelerating 2.1% in Q4 2022. This compares with 1.7% in the previous quarter.

Positive quarter-on-quarter growth was also evident for high street retail, the report found, with rents growing on average by 1.1% and 3.5% for logistics in Q4 2022 compared to Q3 2022.

Nigel Almond, head of data analytics at Cushman & Wakefield, said: “As markets fully reopen from the back of the global pandemic, we have continued to see strong demand for best-in-class Grade A office space across Europe.”

According to Almond, this is particularly true for offices which meet the latest environmental standards, are attractive to employees and create the right working environment to support a flexible working strategy, collaboration, and staff wellbeing.

He explained: “As a result, prime office rental growth at the European level rose 6.2% in Q4 2022 compared with Q4 2021; it’s strongest annualised reading since mid-2008, and well up on the 1.7% growth registered a year ago.”

For core European office markets, the strongest growth was mainly driven by Germany (8.7%), Benelux (7.3%) and semi-core markets (covering Ireland, Italy, Portugal and Spain), which grew 7%.

There is also continued growth in some peripheral markets of Europe, which typically lag more established European markets, where growth rose 11.3%, the report highlighted.

In the logistics sector, continued demand for premises and rising construction costs have maintained the upward pressure on rents. Average growth across European markets was up 3.5% quarter-on-quarter, which pushed full year growth to 13.9%, breaking the record rise of 12% set last quarter.

Cushman & Wakefield noted that this was the highest growth rate since the data began in the early 1990s.

While headwinds helped to see most retail markets remain flat over the quarter, pockets of growth in peripheral markets of Europe (4.5%) helped push average growth across European markets to 1.1% quarter-on-quarter.

Meanwhile, rising interest rates, elevated levels of inflation and concerns over economic growth has impacted investor demand.

Despite occupational markets remaining solid, especially towards the prime end, the report identified that yields continued to edge out, with much of the movement evident in the fourth quarter.

Logistics and offices witnessed the strongest outward movements during 2022, while office yields edged out +61bps over 2022, with half of this (+31bps) evident in Q4 2022.

Retail, which was hit hard in the pandemic, saw more modest movements. Across the European markets monitored yields moved out by just +22bps over the year to 4.41%, with much of this (+17bps) evident in Q4 2022 alone, the report stated.

Almond said: “Further downward pressure can be expected in the near term. With the expectation of economic growth improving in the latter half of 2023 and inflation falling closer to target levels in 2024, we would expect a recovery in values in 2024.