A lack of office completions across Europe is creating a critical lack of supply, according to a new report from Savills.
Office deliveries are down 9% compared to last year - which was already 16% lower than 2014 - a trend compounded by the increasing demand for high quality space.
'In core countries, office supply has reached pretty much the same low as pre-crisis levels, and the situation is becoming critical for companies who need to relocate. Several are now forced to postpone or revise their plans if they do not want to move out to suburban locations,' commented Lydia Brissy, director of Savills European Research.
Savills recorded that the average vacancy rate across Europe in Q3 fell to 7.9%, down from 8.45% in Q3 2015. The tightest markets in terms of supply are relatively unchanged from previous quarters with Berlin, Munich, London WE, Paris CBD, Stockholm and Zurich recording vacancy rates below 5%.
Notably, Stockholm (3.1%) and Berlin (2.9%) have the lowest vacancy rates in almost a decade, and have earned Europe's highest rental growth year on year as a result, at 19.6% and 12.1% respectively.
Paris La Defense (10.2%), Zurich (6.5%) and Paris CBD (3.2%) all witnessed strong positive rental growth. In peripheral markets however, office supply is still above the levels recorded in 2007- 2008; and with vacancy rates above 12%, Amsterdam, Helsinki and Warsaw are at the other end of the spectrum.
Savills European Office Market report states that prime CBD rents across Europe grew an average of 2% year on year, down from the 4% growth recorded in Q3 2015. While a rebound of development activity is expected in 2017, by as much as 25%, the continent is unlikely to face an over-supply situation. Much of the new stock is already pre-let, which will squeeze the average vacancy rate to 7% by the end of 2017.
'Next year however, prime rental growth will be stronger in non-CBD locations as suburban areas offer newly developed large-scale office premises which are scarce in most CBDs,' added Brissy.
'The lack of supply across all of Europe has become a significant issue for European businesses over the last 12 months, with a rise in occupancy costs and real pressure from landlords. However, there are unprecedented levels of uncertainty surrounding business and it remains to be seen what effect the US elections, Brexit and the upcoming elections in Europe will have on overall occupier demand,' concluded Matthew Fitzgerald, head of European Tenant Representation, Savills.
