European office development fails to take off outside London: CBRE

The take-off of European office development is being hampered by the combination of an uncertain rental outlook and constrained access to development finance, according to a new report by CB Richard Ellis (CBRE).

Recent indicators have suggested a measure of improvement in the European office markets: rents have stabilised, vacancy rates are peaking at lower levels than in previous cycles, and leasing activity has increased from its mid-2009 lows. Despite this improvement, analysis of development pipelines in the major European markets shows that the absence of new starts will cause a sharp drop in completions next year. By 2012, completions will be running at less than half their recent peak, CBRE said.

Richard Holberton, Director EMEA Research & Consulting, said: ´The delivery of new space across the main Western European office markets peaked in 2008/09 and is set to slow progressively over each of the next three years. The forward development pipeline until the end of 2012 is mainly comprised of schemes already in progress. Sentiment towards the reactivation of schemes that were mothballed in the early stages of the credit crunch is quite hard to assess but, other than in London, there seems little sign of a shift in developers’ attitudes.´

Holberton claims London is currently the only major market where there is any substantial evidence of interest in reactivating delayed schemes for delivery beyond 2012. ´There are some isolated examples of renewed interest in development in other European markets, but these reflect specific building circumstances rather than a broader shift in momentum. Indeed, the recent Euro crisis has the potential to cause further banking loses and hence further restrict the appetite of banks to lend on property developments,´ Holberton noted.