Prime European office rents continue to stabilise in Q1: JLL

Prime office rents and incentives continued to stabilise in the majority of European markets in Q1 2010, with the European Prime Office Rental index increasing 1.2% quarter-on-quarter. This marks the first rise since Q2 2008, according to Jones Lang LaSalle's Q1 2010 European Office Clock released on Monday. The index is based on the weighted performance of 24 markets.

Compared with a year ago, however, prime office rents were down 5.0% in Q1 2010. The biggest rise in rents was seen in Moscow (14%) and the City of London (6%). Rents in Brussels also grew 17% but this was due to one exceptional deal in the Leopold district and not indicative of the wider market. Some markets saw further softening, with the greatest falls in Dublin (-7.6%), Madrid (-2.5%) and Budapest (-2.4%), although in Dublin there has been some stabilisation in the wider market.

Chris Staveley, Director in Jones Lang LaSalle’s EMEA Capital Markets team, said: 'This quarter’s office clock not only reflects the range of rental conditions and prospects, but also shows how all markets are moving through "rents bottoming out" and toward growth. This quarter, the City of London entered the "rental growth accelerating" quadrant and several markets were at, or approaching, 6 o’clock.'

Although signs of economic recovery are beginning to feed through into office demand, tenants remain cautious and cost-sensitive, according to JLL. In the absence of strong economic growth, current market activity remains driven by lease events, portfolio churn and corporate activity including office consolidation and the realisation of space efficiencies rather than expansionary plans.

Take-up for Q1 fell slightly to 2.4 million m² across Europe, a fall of 9% on the previous quarter. The decline was driven mainly by Western Europe (-12%) whereas take-up increased slightly in the CEE region (+6%). Despite this, take-up for Q1 2010 was 38% up on Q1 2009 with both Western Europe and CEE seeing annual increases. Overall, nearly half of the 24 index markets showed an increase in demand over the year, with Dusseldorf, Barcelona and Dublin showing the sharpest improvement though these markets rose from very low levels.