Lean times for European office markets, King Sturge

'European office markets are experiencing their leanest period for five years,' according to King Sturge. Based on research in its latest office market report to be launched at Expo Real in Munich the property adviser found that 'initially, property investment bore the brunt of the crisis but our research shows evidence of weaker take-up and increasing supply, although prime rental growth is slowing rather than falling'.

The report added that the turnaround over the last 12 months had been unexpectedly abrupt. This was due to the concentration of office demand in finance and business services, which made them more vulnerable to the impact of the crisis.

On the investment side the report found that the shortage of credit has resulted in yields moving out in most European locations, on average by 90bp across the 45 cities surveyed. The shift was most notable in the UK, King Sturge said. ‘As the UK tends to be ahead in the economic cycle, UK cities have adjusted the quickest and on average by 165bp. We expect further outward shifts in yields on the Continent before we witness an upswing.’

Occupier markets have also been affected by the crisis with many companies now altering decisions to move or expand the report said. As a result, there has been a reduction in take up and a gentle rise in supply and funding for development projects was now becoming ‘more difficult’.

Activity is expected to slow in Central and Eastern Europe markets due to the impact of the economic crisis despite the fact that there is continued demand for quality modern office space. In particular the report notes ‘Turkey continues to experience rental growth although we have yet to see what impact the current conditions will have there; occupier activity remains buoyant in Zagreb (Croatia) and in Bucharest (Romania), two markets that have not seen a decline in take up’.

The advisers expect the current downturn to continue through 2009 with hopes for an upswing by 2010.