More positive signals for European office markets: JLL

Positive signs increased in the office markets during the second quarter of 2010 even though austerity measures and concerns surrounding sovereign debt in European economies triggered a new wave of economic uncertainty and volatility in financial markets, according to Jones Lang LaSalle's latest European Property Clock.

Office take-up in Europe for Q2 2010 increased marginally to 2.6 million m2, up 6% on the previous quarter and 34% on Q2 2009. Take up for H1 2010 is now 38% higher than for the same period in 2009, having improved in both Western Europe and CEE up by 32% and 73% respectively over the same period.

Prime rental levels stabilised in the majority of locations in Q2 and the Office Index, based on the weighted performance of 24 markets, increased by 2.6% quarter-on-quarter, building upon the growth seen during Q1 and showing the first positive growth (+2.1%) on an annual level since Q3 2008. The biggest rise in rents was seen in London's West End (13.3%), Paris (7.1%), City of London (5.3%) and Dusseldorf (2.3%). Quarterly rental falls were however recorded in Dublin (-5.3%), Frankfurt (-2.9%), Madrid (-2.6%), Barcelona (-2.4%) and Hamburg (-2.2%). Incentives offered by landlords also stabilised with some markets seeing incentives reducing such as London City, London West End, Bucharest and Hamburg.

Chris Staveley, head of Pan-European Office and Industrial Capital Markets at Jones Lang LaSalle, said: 'Signs of economic recovery are beginning to feed through into office demand, but occupiers still remain cautious and we expect annual volumes to be slightly below the five year average of 11 million m².'

Approximately 1.4 million m² of new stock was added in Q2, a 25% increase on the first quarter. Despite this new stock, tightening supply of quality space is driving rental stability and even growth, but there are significant differences in current total supply levels - and sentiment - across the region which has led to differences in outlook.

The average European vacancy rate remained stable in Q2 at 10.2%, despite these additions, the same level as in Q1 2010 and Q4 2009. The vacancy rate increased slightly to 9.8% in Western Europe but fell substantially in CEE from 16.4% to 14.6%. This decline was particularly driven by decreases in Moscow and Budapest, whilst increases where recorded in both Prague and Warsaw.