Strengthening economic activity has translated into improved demand in European office markets and a higher take-up level over the first half of 2006. Incentives are becoming less generous and real positive rental growth is recorded in most markets, according to a survey of the European office markets by Savills' European Research division.

Strengthening economic activity has translated into improved demand in European office markets and a higher take-up level over the first half of 2006. Incentives are becoming less generous and real positive rental growth is recorded in most markets, according to a survey of the European office markets by Savills' European Research division.

Observed average annual prime rental growth has increased from 1.9% in 2006Q1 to a significant 6.7% in the third quarter of 2006, said Eri Mitsostergiou, associate director - European research at Savills Commercial.

Despite higher letting activity, vacancy rates did not really drop and remain slightly below 10%. This can be explained, Savills said, by the fact that most of the demand is driven by relocation requirements. The delivery of new office space has slowed down and most of the newly completed schemes are taken-up as there is demand for modern premises. This leaves the highest part of the available space in second-hand buildings.