Job growth in Europe’s first and second-tier cities – coupled with low wage rates – will drive office demand according to a new report by Moody’s Analytics.

The researcher’s ‘European Regional Forecasts: Comparative Advantage, Opportunities and Risks’ report outlines the prospects for cities across the continent.

The highest job growth rates, the study found, are likely to be recorded in cities recovering from “deep downturns since the global financial crisis”.

The study also found stronger long-term employment growth – of as much a 12% – since 2001 in second-tier cities with populations between 1.25 million and 2.5 million. The figure compares with 8% for first-tier cities (with populations of more than 2.5 million).

“Over the coming years, some of the best growth prospects for commercial real estate will be in large metro areas that have gone through deep downturns,” said Steve Cochrane, managing director at Moody’s Analytics, pointing to the likes of Milan, Rome, Madrid and Manchester.

Some of the hardest hit metro areas of the financial crisis, such as Dublin and Madrid, could see “rapid acceleration” off the back of relatively low wage rates. Combined with a skilled workforce, opportunities for a labour market rebound should emerge. 

“Smaller cities like Dublin and Copenhagen that also suffered deep recessions during the financial crisis will also offer good growth opportunities,” Cochrane added.

London and Germany’s metro areas, however, will see growth slow next year and in 2016, moving towards longer-term rates of growth.

“Job growth in London may slow from its pace of the past three years as the area’s financial services industry becomes increasingly cost conscious,” Cochrane explained.

The study found that the three-year outlook for most tier-one metro areas is positive. Madrid and Lisbon are, the report said, finally beginning to see some labour market recovery.

“Thanks to a combination of wage cuts with other structural changes, labour markets in Spain and Portugal are now quite competitive and should enjoy strong job growth in coming years as the economy improves,” Cochrane added.

Second-tier metro areas have, the report said, experienced less volatility and stronger growth since 2000.