Office occupancy costs to increase in Europe: DTZ

Average occupancy costs in Europe will grow 2% year-on-year to 2015, according to the fourteenth edition of DTZ’s annual Global Occupancy Costs: Offices survey. Rental increases will drive the forecast rise in occupancy costs across Europe. Other outgoings, such as property taxes and service charges, are also set to increase. However, occupiers will continue to benefit from substantial savings in many markets. Growth will be lower across Europe than will be seen globally, and by 2015, occupancy costs will remain 11.7% lower than at the peak in 2007.

DTZ’s survey assesses the main components of occupancy costs in 121 business districts in 47 countries/territories across the globe, ranking each location based on annual costs per workstation in USD. It includes rents and outgoings, such as maintenance costs and property tax.

London's West End will be the fastest growing market in Europe over the next five years. Recovering demand, combined with supply constraints following reduced development activity, will continue pushing up rents. Occupancy costs are forecast to increase by 5.1% (USD 5,730) per annum, to reach USD 25,890 per workstation by 2015.

This growth will see London’s West End retain its position as the second most expensive office location in the world, behind Hong Kong. CEE will also witness above average increases in occupancy costs. Moscow is forecast to see the biggest increase in occupancy costs to 2015, at 3.8% per annum, followed by Warsaw and Kyiv. This reflects the strong economic outlook for the CEE region, combined with tighter supply of good quality buildings in the near term.

Of the more established markets in Continental Europe, occupancy costs are forecast to increase fastest in Munich (2.8% per annum) and Paris CBD (2.7% per annum), where demand will outpace the limited availability of prime stock in the short term. This growth will see occupancy costs in Paris CBD edge closer to those in Geneva, the most expensive office location in Continental Europe.

Magali Marton, head of CEMEA Research at DTZ: 'We expect increasing occupancy costs across Europe to be driven by rising rents, but rental growth is underpinned by varying factors. The rebound in global production and consumer spending is driving rental growth in Eastern European office markets. In London’s West End and Paris CBD, recovering demand, combined with supply constraints following reduced development activity during the recession, is pushing up rents.'