Affordability of rents in the Central and Eastern European cities of Warsaw, Prague and Budapest remains a concern, according to the Office Affordability Index published this week by adviser DTZ. Despite relatively moderate rental levels these locations are amongst Europe’s least affordable cities in terms of office space. Slowing economic growth will lead to deteriorating accessibility of modern office facilities for many local occupiers, thus limiting market growth potential, the report said.

Affordability of rents in the Central and Eastern European cities of Warsaw, Prague and Budapest remains a concern, according to the Office Affordability Index published this week by adviser DTZ. Despite relatively moderate rental levels these locations are amongst Europe’s least affordable cities in terms of office space. Slowing economic growth will lead to deteriorating accessibility of modern office facilities for many local occupiers, thus limiting market growth potential, the report said.

'Although differences in occupancy costs between cities are not the principle driver of location decisions, companies are increasingly looking at differences between cities and taking it into consideration when choosing a location,' says Bert Hesselink, Head of Office Agency at DTZ in Prague.

The Prague office market is 28% overvalued relative to occupiers' output, the report concluded. On a global scale, however, the position of Prague is rather good, says Hesselink. According to the study which makes a global comparison of office occupancy costs in 114 business districts in 49 countries worldwide, Prague took 83rd place with the costs amounting to EUR4,340 a year per workstation (as at end-2008). These costs include any payments charged to a tenant, i.e. rents and outgoings such as maintenance costs, property taxes. Also the average space utilisation standard per worker of 11.3 m2 in the Czech capital is below the global average of 13.5 m2.

The situation is becoming difficult in eurozone cities that experienced significant credit-induced asset inflation and which are unable to deflate themselves out of these bubbles via monetary policy, such as Milan and Rome. Conversely, a number of European cities are becoming much more affordable when employee output is taken into account. In Paris CBD, London West End and Dublin, accommodation costs are becoming more affordable, as rental decline and incentives given by developers to attract tenants continue to rise. London, Brussels, Stockholm and Amsterdam are amongst the most affordable cities in Europe, with tenants spending less than 13% of their revenues on accommodation costs.

The Office Affordability Index relates average occupancy costs to revenues per employee in key European markets.

The previous growth of office occupancy costs came to a standstill in the second half of 2008 in large European cities. According to DTZ, between 2001 and 2008 average rental growth in these locations posted a staggering 13.5 % per year, which significantly exceeded the average GDP growth (2.3%), as well as the inflation rate (2.6%).