JLL: Office rental growth slows down in Europe

The commercial real estate market cycle has turned further in favour of the occupier across Europe, but more occupiers are adapting a wait-and-see strategy, according to Jones Lang LaSalle's EMEA Occupier Conditions Report for the third quarter of 2008.

The report shows that some markets in the EMEA region have shifted to the 'rents falling' section of the clock - a position that indicates market conditions that favour occupiers: London's City and West End markets, together with Brussels, Zurich and Almaty, have shifted into this section. Prime rents in London's West End fell by 4.3% in the second quarter, while London City rents fell a further 1.6% on the back of a drop of almost 4% in the first quarter. Brussels has shown a decline of 3.4% in rents, while Almaty fell 2.2%. Other markets (Barcelona, Casablanca, Dublin, Madrid, and Riga) are on the cusp of rental decline. These are markets that will further encourage occupiers to, where they can, wait and see.

Tom Bayne-Jardine, managing director of European Corporate Solutions at JLL said: 'Although grade A space remains in short supply, vacancy rates across the region are up. At the same time the rate of rental growth has tailed off steadily across the region with rent reversals in some markets. These changes have occurred at a time when occupier confidence is falling sharply and the willingness to commit to new real estate has diminished correspondingly.'

Sentiment from our market observers suggest that declining or the point at which rents stabilise will be a key feature for EMEA occupiers over the next 12 months. 31 of the 50 markets covered within this report are predicted to show a decline or stability in rents between now and the second half of 2009.

Lee Elliott, director of EMEA Research at JLL added: 'We have noticed clear transformation in the nature and rationale of occupier activity in the region. A greater proportion of tenant activity in markets in Western Europe is derived from existing or local occupiers. Localised occupier groups are often using a structural opportunity, such as a lease break or an expiry, to upgrade office space or to relocate to other submarkets. This tactical use of lease events will be a key feature of the occupier markets over the remainder of the year and into 2009.'