Rental growth for prime CBD and secondary office properties is expected to polarise further, according to Savills' latest European office market report.
Rental growth for prime CBD and secondary office properties is expected to polarise further, according to Savills' latest European office market report.
The report highlights that the tight supply of prime office space is causing rents to rise or stabilise in the best locations whilst secondary rents are decreasing due to higher availability and rising incentives in secondary buildings and locations.
In one third of the markets surveyed rental growth of above 4% was recorded for prime CBD offices in 2013, with Dublin (16.1%), Helsinki (7.4%) and Oslo (6.1%) at the top of the ranking. The firm predicts that the highest prime CBD rental growth trends in 2014 will be recorded in London’s West End, Dublin, Manchester and Brussels. Secondary CBD rents recorded varying results with markets such as Paris, Warsaw and Belgrade experiencing significant (-10% to -12%) rental discounts. However in Brussels, Dublin, Oslo, Stockholm and London a rental growth of between 5% and 10% has been recorded.
Tight supply of prime space is reflected in low CBD vacancy levels with the average CBD vacancy rate recorded at 7.5% across the markets surveyed, compared to an overall average vacancy rate of 10.2%. The international real estate advisor attributes the decreasing supply of prime stock partly to demand being driven by large-scale requirements.
These have been characteristic of most European markets during the downturn as occupiers have, in many cases, consolidated their space and downsized to bring operations under one roof. As a result, absorption of the best space and vacancy is largely concentrated in secondary locations and buildings. Savills expects overall average vacancy rates to drop below 10% in all markets except Helsinki, Athens, Berlin and Warsaw. The tightest markets are currently London, Berlin, Munich and Vienna where average vacancy is below 7%, the firm said.
Eri Mitsostergiou, European research director at Savills: 'Occupiers in European markets are still looking for high quality buildings so the availability in prime locations is much lower than average, pushing rents up. We are now also beginning to see falling supply of prime office stock, which is triggering developer activity for refurbishments and new buildings, setting off a new cycle.'
Savills survey area includes Vienna, Brussels, Paris, Berlin, Frankfurt, Munich, Dusseldorf, Hamburg, Cologne, Athens, Dublin, Milan, Amsterdam, Oslo, Warsaw, Madrid, Stockholm, London, Helsinki, Belgrade. Click on the link below for a PDF of the full report.