European commercial real estate values rose for the first time in two years in Q3, up 0.63% across all commercial property types, Property Week can reveal.

Data from Altus Group shows that the increase was spurred by cashflow gains and a reduction in projected capital being modelled into valuations.

All property types recorded value appreciation in Q3, but retail was the “standout frontrunner”, according to Phil Tily, senior vice-president and head of performance analytics at Altus Group.

The data shows investor sentiment towards the retail sector is improving as yields for supermarkets and high street retail compressed during the quarter, which had a positive impact on values.

Residential values rose 0.53%, benefiting from an above-average 0.75% cashflow effect. Values in the two largest residential markets in the dataset, the Netherlands and Germany, were up 0.9% and 0.3% respectively.

Meanwhile, the industrial sector had a “relatively quiet Q3”, according to Tily. The sector finished the quarter at the lower end of the rankings, but a net-positive trade-off between cashflow gains and yield increases ensured that industrial values continued to rise, by 0.38%.

Office values turned positive in Q3, up 0.55%. But it was the only sector where cashflows fell during the quarter, shaving 0.24% off values. “With rents trending upwards, the downside on cashflows can be traced to an increase in rent concessions and an escalation in operating expenses,” Tily says.

There was a mixed set of results across the office markets, with Sweden recording the highest rise, at 4.9%, while the UK suffered a further write-down of 2.6%.

In the ‘other’ sector grouping, hotels had another comparatively strong quarter, the data shows. Although revenue levels fell in Q2, strengthening investor interest in this property type was reflected in a positive yield impact, which helped values rise by more than average for the quarter.