Rising vacancy levels drive down office rents - JLL

Prime European office rents declined by 4.6% in the second quarter of 2009 compared with the previous three months and are now on average 15.4% lower than in Q2 2008, according to Jones Lang LaSalle's Q2 2009 European Office Clock Report. At the same time, the overall vacancy rate increased 80 basis points to 9.3%.

The report, which is based on 24 markets, shows that Moscow witnessed headline rental falls of 30% over the quarter, followed by Dublin (-18%) and Madrid (-10%). London experienced a year-on-year fall in prime rents of -32% and has now potentially reached the peak of rental decline, JLL said.

Chris Staveley, head of Jones Lang LaSalle's cross-border team, commented: 'Despite early signs of improvements in economic and business confidence, a significant proportion of occupiers across Europe are still reducing staff numbers and seeking to avoid the costs of relocation. While some tenants are looking to take advantage of current market conditions and secure high-quality space in better locations, overall office demand remains low across Europe.'

Office leasing volumes in Q2 2009 increased 9% from the previous quarter to 2.1 million m² but were down 35% on Q2 2008 levels and nearly 30% below the five-year average. Take-up in Central and Eastern Europe (CEE) increased to 0.6 million m² and now stands 14% above the five-year average. Some significant increases in take-up over the quarter were also reported in larger western European markets, notably Brussels (+51%), Madrid (+46%) and London (+43%), though they are based on comparatively low absolute numbers.

Although completion levels across Europe remain 30% above the five-year average, few new office developments commenced during Q2 2009. Despite difficult leasing conditions, 1.9 million m² of space was completed and added to the market, but this represents a 10% decline over the quarter with several projects being cancelled or postponed.

In the CEE region the average vacancy rate increased significantly to 14.6%, the highest level since 1999, while the Western Europe average rate reached 8.8%.