CBRE: European office rents continue to increase in Q1

European office rents are continuing to rise in a number of markets, despite reduced leasing activity reflecting occupier caution, according to a forthcoming market report on first-quarter trends in the sector by property adviser CB Richard Ellis.

The consultancy firm said its EU-27 Rent Index rose by 1.9% in the first quarter of 2008, maintaining a year-on-year growth rate of 9.3%. The picture, however, remained mixed across the region with evidence that rental growth for some individual cities has peaked, while in others rents are static or falling.

Among major Western European markets some upward movement is still evident in Paris, Madrid and Amsterdam, according to the EMEA Offices Market View. Several of the major Central and Eastern European (CEE) markets, such as Moscow and Prague, are also seeing solid growth although annual rates of increase in this region are easing, the report notes.

Eastern European markets in particular are showing stronger take-up than a year ago and some, like Sofia and Bratislava, saw quarter-on-quarter increases.
Downward pressure on rents is most acute in London, particularly in the City, where prime rents dropped by over 7% in the first quarter. The major German markets, along with Brussels, Stockholm and Dublin, saw no change in prime rents over the quarter.

Short-term weakening of the major European economies is starting to be reflected in leasing activity, the report shows. Aggregate take-up for the main 15 markets totalled 2.0 million m² for the first quarter, below the average of 2.5 million m² per quarter over the past two years. Some of the major financial centres such as Frankfurt, Madrid and Paris saw take-up decline by over 10% in the first quarter. Reduced take-up in these markets appears to reflect general occupier caution rather than a reduction in activity from financial services firms.

Development completions over the next two years continue to rise despite the weakening in demand. However, after the completion of projects already in progress, development activity is expected to tail off as a result of tighter constraints on financing. Lending terms for development financing have tightened in most European markets and will result in reduced development activity in the medium term.

Richard Holberton, Director of CB Richard Ellis' EMEA Research and Consultancy, said: 'Demand is slowing in response to a weaker economic environment and increased uncertainty among corporates although, interestingly, the deterioration in most of the key measures of market activity has so far been relatively mild. There is considerable variation in market conditions across Europe and it is increasingly important for investors to be able to assess these in making individual investment decisions.'