Prime office rents continued to grow during the third quarter of 2010, albeit at a slower pace, according to Jones Lang LaSalle's Q3 European Office Clock. JLL's Office Rental Index rose by a modest 0.7% over the quarter, driven by Moscow (+6.3%), Stockholm (+5.4%) and London (+2.9%).

Prime office rents continued to grow during the third quarter of 2010, albeit at a slower pace, according to Jones Lang LaSalle's Q3 European Office Clock. JLL's Office Rental Index rose by a modest 0.7% over the quarter, driven by Moscow (+6.3%), Stockholm (+5.4%) and London (+2.9%).

Rents were unchanged for the rest of the Index markets with the exception of Spanish Cities with rents in Madrid decreasing by -2.7% and by -2.5% in Barcelona. Chris Staveley, Head of Pan-European Office and Industrial Markets at Jones Lang LaSalle, said: 'The research also shows that demand for office space decreased slightly over the quarter, but stands 36% higher than a year ago with net absorption remaining positive.'

Hefty incentives remained a feature of many markets and net effective rents were on average 17% below prime face rents, with the largest spread reported in the UK, Ireland and some Dutch markets. A clear differential also remained between prime and secondary space with rents for secondary space remaining under downward pressure.

Further yield compression pushed capital values higher, with the capital value index increasing 4.7% over the quarter. Yield compression was witnessed in 13 out of 24 markets with Paris and Moscow both experiencing compression of 50 basis points.

As economic growth returns, occupiers are increasingly committing to deals, although much activity remains driven by consolidation and churn, JLL says. With 2.5 million m2 transacted in Q3 2010, office take-up decreased by 8% over the quarter. This is not unusual given the summer season and, compared to this time last year, take-up was 36% higher and only 5% below the five year average.

The average European vacancy rate remained double-digit but was stable over the quarter at 10.3%. It has remained at between 10.2% and 10.3% since the end of 2009. Whereas vacancies continued to decrease in CEE, mainly driven by further reductions in the Moscow and Prague markets, levels in Western Europe increased slightly - by 20bps to 10%.

The vacancy rate remained furthest away from the five-year average in Barcelona, Madrid, Luxembourg and Moscow. Conversely, rates in Berlin and Frankfurt were within a few percentage points of their five-year average levels. Rates of over 15% could still be found in Amsterdam, Dublin and Budapest and there was a significant spread across Europe with the lowest rate at 6.4% in London West End. Although vacancy only decreased in 8 of the 24 Index markets, JLL said it believed most markets have reached, or passed, their peaks.

On the supply side, completions are declining, according to JLL. Around 1.2 million m2 completed in the third quarter across Europe. This reflected a fall of 16% in comparison to Q2 and 15% compared to the five-year average.