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Prime office rents stay stable in Europe

Thursday, June 07, 2012

Prime office rents stayed stable in Europe across the first three months of 2012, according to CBRE.

The firm's rent index edged up by just 0.1 per cent over the quarter, although this stability masks modest increases in certain areas. Hamburg outperformed the rest of the continent, with rates rising by 4.3 per cent, while Nordic markets also saw rents increase. Overall, office rents across Europe are 0.4 per cent above last year.

Richard Holberton, Director, EMEA Research, CBRE, said: "As the economic challenges in Europe continue, we are seeing a more pronounced divergence in the performance of key office markets. Where economic and political uncertainty is most acute, most obviously Greece, but also Spain and Portugal, the office markets either remain in decline, or are showing very limited signs of recovery. In the more robust economies, such as Germany, or those that are largely outside the eurozone, such as the Nordic markets, there are more positive signs. With the economic challenges set to continue throughout the rest of the year, we expect the polarization of European office markets to persist."

 For the past 18 months, uncertainty in the eurozone has had an adverse effect on corporate decision-making, with several occupiers avoiding large new space acquisitions until the outlook becomes clearer. In Q1, take-up across Europe was down 9% compared to the same period the previous year, with significant declines in Milan, Dublin and Madrid.  

 Take-up in London in the first three months of the year was comparable to the same period last year (+1%); meanwhile significant increases were evident in Moscow (+25%) and Frankfurt (+60%).  

 Development completions are bottoming out in many European markets, reflecting the low level of construction since 2007, largely due to the scarcity of development finance. In a handful of markets, notably London, there are signs that completions will increase next year and beyond (completions in London in 2013 are expected to increase 67% year-over-year to 458,000 sq m). However, completion forecasts are susceptible to revision, with some office developments likely to be delayed due to difficulty in raising finance. 

 Despite the low levels of new office stock being completed in European markets, vacancy rates only decreased marginally in Q1 2012, down to 10.25% from 10.35%. This is mainly attributable to weak demand and occupiers opting to rationalise their portfolios and dispose of surplus secondary space. Again, there is a link between vacancy rates and economic confidence, with rates increasing in some southern European markets, notably Madrid and Milan, and declining in Germany, some Nordic markets and Moscow.

 

 

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