German markets, Amsterdam shine in office rent recovery

German markets and Amsterdam are notable bright spots in the ongoing recovery of office rents across Europe, according to new research by Colliers International.

Europe’s leasing market reported positive growth across 17 major office markets in the first half of 2014, as the Eurozone continued its recovery drive with improved sentiment across the region.

Prime rents in 85% of office markets across Europe and the Middle East either reported a boost in the last six months or remained static, according to Colliers International’s EMEA Office Snapshot for H1 2014.

The countries showing the most notable increases were Germany and the Netherlands. The office market in Germany saw the strongest growth, with prime CBD rents in Stuttgart leaping 25%. Munich also reported rental increase for the seventh consecutive half since H2 2010.

Amsterdam likewise reported an upward trajectory of rents over the last 18 months, underscoring the recovery of its prime office district amid an increasing gap between primary and secondary markets in the Netherlands. The investment market was also a positive story for Amsterdam, which saw prime yields moving in by 40 basis points compared to end-2013, along with a sharp increase in investment volumes.

Bruno Beretta, senior research analyst for EMEA at Colliers International, said: 'The progressive results in rents are a result of a combination of economic improvements and greater confidence in the European occupier markets, especially the UK and Germany. This is combined with a generalised lack of modern space available in central business districts due to low volumes of new speculative completions.'

[B}SOUTHERN EUROPE
Even Southern European markets like Madrid and Lisbon, with the former experiencing a particularly severe correction since 2009, have seen prime rents move ahead. Lisbon reported an annual rental increase of 1.4% in H1 2014. Despite these increases, a more sustainable recovery of occupational markets in Southern Europe is not expected until the end of this year, or more probably 2015.

Craig Satchwell, head of EMEA Offices at Colliers International, said: 'Increasing demand by media and tech occupiers across EMEA, together with the shortage of new supply have created a climate for sharp rental growth in many European markets, both at headline levels and for average second-hand accommodation. Media and tech companies are the second most active when it comes to take up, with a 21% share of take up across London, Paris, Amsterdam and the big six German cities combined; according to our 2014 Media and Technology iQ.'

The Colliers report shows that ECB’s recent interest rate moves, the weight of capital now targeting European real estate and rental growth expectations contributed, in most instances, to stable or falling office yields in the first half of 2014.

As a result, these factors have led to an upgraded perception of the European investment market. Given current high levels of interest in many major European markets, yield compression was observed in many peripheral markets like Dublin (-75 bps), Madrid (-50 bps), Barcelona (-25 bps) and Athens (-25 bps).

Prime yields hardened in a number of cities in CEE, notably Bucharest (-50 bps), Budapest (-25 bps) and Prague (-25 bps), with the latter two markets witnessing continued growth in investment volumes and increasing levels of investor appetite in the first half of 2014.