Average prime European CBD office rents have grown by 7.4% since the Covid-19 pandemic, above the secondary CBD average of 1.1%, according to research by Savills.
Due to EPC regulations, the gap between prime and secondary growth has grown the most in London West End (34%), Amsterdam (29%) and Paris (16%).
The UK’s Minimum Energy Efficiency Standards (MEES) regulation requires a minimum EPC rating of C by 2027 and B by 2030 for existing commercial property.
All office buildings in the Netherlands must have an energy label of C or higher as of January 2023, with penalties for non-compliance. The Dutch government wants to raise this requirement to an A label starting in 2030.
In France, the Décret Tertiaire regulation foresees the reduction of energy consumption in existing tertiary use buildings, targeting at least 40% in 2030, 50% in 2040 and 60% in 2050.
Mike Barnes, associate director, European research at Savills, said: ‘Between 2014 and 2020, prime and secondary CBD office rents tracked a fairly similar path. However, the pandemic and legislative deadlines have disrupted the relationship between prime and secondary rental growth, with the former outperforming the latter.’
Christina Sigliano, EMEA head of global occupier solutions at Savills, added ‘On the one hand, occupiers are opting for greener office space, both to attract and retain talent against industry competitors amid record low unemployment rates. More recently, though, larger, listed companies are opting for greener stock in order to reduce carbon emissions. Given the relationship between tightening EPC regulation and a widening divergence between prime and secondary CBD rental growth, we expect mainland European markets will observe a similar rental diversion once stricter EPC regulations are inevitably introduced.’
In London West End, occupiers in search of prime space have very limited options, whilst in the City, there is a higher availability of prime buildings for occupiers.
In Amsterdam, secondary CBD office rents have not grown since 2019, reflecting the challenges with leasing older stock.
Savills expect prime CBD rental growth to outperform secondary CBD rental growth for European markets which are currently not subject to EPC regulation.
Should further regulation be introduced across other European markets, some landlords are likely to review opportunities to convert assets to alternative uses seeking rental uplift.
