European office net effective rents dropped by an average of 2% over the last six months, falling most significantly across Paris CBD (-12%), Dublin (-11%) and Amsterdam (-5%), Savills' latest research reveals.
By contrast, low vacancy rates across Munich at 2.9% and Berlin at 2% have continued to apply upward pressure on headline rents, despite additional landlord incentives.
Rising levels of available space have been fairly broad-based across each European market, with the average core market vacancy rate rising from 3.0% to 4.5%, according to the international real estate advisor.
The equilibrium for stable rental growth across core European markets is a vacancy rate of circa 9%, suggesting the core markets still have some headroom for vacancy rates to increase before there is any real impact on prime headline rents.
Mike Barnes, associate, Savills European research, said: 'In most of Europe, we are observing landlords offering more flexible leasing proposals as a result of market uncertainty.
'For example, Manchester’s rent free period increased from 12 months to 15 months on a five year lease during H2 2020 while in Madrid, landlords are able to offer leases with two fixed years plus three optional years. This includes more generous contributions to fit-outs, although rent free periods have remained fairly stable over the six month period.'
Matthew Fitzgerald, director, Savills EMEA cross border tenant advisory, said: 'We anticipate average lease incentives will continue to rise throughout 2021 as lockdowns persist, although once certainty returns, businesses will seek a long-awaited return to the workplace.
'Looking forward, tenants who are able to lock in improved incentives this year will be the main beneficiaries.'
