#MIPIM2016 BNP report cites strengthening office fundamentals in Europe

BNP Paribas Real Estate has published the latest edition of its European Office Market Report, which recorded strengthening office market fundamentals in European cities throughout 2015.

Positive office take-up result in Europe was driven by the strong performances recorded in German cities such as Berlin (+34%), Italy with Milan (+37%) and Spain with Madrid (+22%). Conversely, Central Paris and Central London, the 2 dominate European markets, ended 2015 with more standard levels. The volume of large transactions (over 5,000 m²) did not see major change in 2015 compared to 2014, which means that take-up was mostly sustained by small and medium-sized deals and demonstrate the improving occupier demand.

The investment market in the 39 cities monitored in the report showed great dynamism in 2015. With a volume slightly exceeding €125 bn total investment ended up 14% higher than in 2014 and even topped the previous 2007 record by 1%.

Central London remained the number one market in Europe, attracting the biggest share of activity; however its volume marked a minor decrease over 2014. In fact, 2015 marks a year of diversification where investors strongly bought all over Europe.

Global gloom
The report notes that while the European economic recovery is resilient, the global context is now less supportive. Moreover, significant geo-political and economic events are awaiting in 2016. The economic slowdown registered in 2015 for emerging and developing economies will endure in 2016.

China’s economic slowdown has been driven by a rebalancing of the economy away from the export-intensive manufacturing sector and more toward domestic consumption and services production. For most of the other developing economies, problems stem from the weak commodity prices and the increase of the US dollar denominated debt due to the USD appreciation.

For the US, the main uncertainties come from the result of the presidential and congressional elections, the Fed response to the economic slowdown and the bankruptcy risk in the shale oil industry. In Europe itself, uncertainties come mainly from the UK “in/out” referendum and the immigration flow from the Middle East.

Commenting, Christophe Pineau, global head of research at BNP Paribas Real Estate, said: 'Despite weaker expected economic activity in Europe this year, there are reasons to be optimistic. Inflation in the Eurozone is projected to stay extremely low in line with oil prices; hence we anticipate that the European Central Bank will increase its quantitative easing policy. As a result, the euro is expected to stay low against the major currencies; this will support purchasing power across Europe.

'In Germany and the UK unemployment rates remain at historical lows, albeit with limited impact on wages but consumption is rising on the back of weak inflation and increasing consumer confidence. At the same time countries such as Spain, the Netherlands and Ireland are showing solid GDP growth.'