Risk of eurozone breakup higher than ever: DTZ

The continuing uncertainty surrounding the European sovereign debt crisis has increased the probability of a downside scenario with multiple eurozone exits, according to DTZ’s Annual Outlook report.

In the medium term, Europe will return to growth but a significant degree of uncertainty still exists under the base case scenario, DTZ said. The adviser points to Oxford Economics estimates showing that the risk of multiple eurozone exits under the worst case scenario has doubled to 20% over the past year - the highest probability so far.

Magali Marton, head of CEMEA research at DTZ and co-author of the report, commented: ‘Under the base case scenario, the UK and Germany will show stronger than average rental growth with rents rising by 2.6% and 2.2% respectively in 2013-2014. This is mainly due to improved economic conditions and a lack of Grade A space.’

Occupiers in Southern Europe, on the other hand, will ‘unsurprisingly’ see rents fall under all three scenarios, she said. ‘The impact of eurozone break-up under our downside scenario will lead to sharp rental declines of 17% to 2014. The Nordics, the UK and Germany are left relatively unscathed under the downside scenario.’

Further analysis of individual markets in Europe shows that across the five most affordable markets, the decline under the downside scenario is at or below the European average. These non-core markets are at low levels already and not expected to see a strong recovery in the base case.

This is in contrast with the least affordable European office markets such as London West End and Paris CBD which are significantly impacted in the downside scenario. This means that tenants would be able to lock in cost savings in the two biggest office markets in Europe under the downside scenario.

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