Frankfurt

LONDON (Feb 4): The aggregate take-up for European office space is expected to rise by 10% this year on the back of resilient demand and shortage of office space supply, said global property services firm Knight Frank.

According to the firm’s European Commercial Property Outlook 2016 report, the commercial property investment market entered 2016 on the back of a very strong 2015, with provisional data indicating that transaction volumes increased by more than 20% year-on-year.

Knight Frank head of European capital markets Andrew Sim noted the improved demand, combined with the diminishing availability of prime office space in European Centre Business Districts (CBD), should support more widespread rental growth in 2016.

“With prime yields reaching historically low levels across a growing number of European markets, we anticipate the pace of yield compression will slow, and investors will increasingly look to rental growth, rather than yield compression, to drive investment returns,” he said in the press statement.

Knight Frank research associates Matthew Colbourne said shortages of prime CBD office space and good rental growth prospects should encourage investors to explore city centre development opportunities across key European markets.

“Meanwhile, there are opportunities to gain value by redeveloping less desirable Grade B assets and offices in secondary locations, and through their change of use,” he added.

According to the report, prime CBD in cities such as London, Paris, Dublin, Frankfurt (pictured) and Madrid have seen limited supply of office space.

Hence, the pent-up demand for such office space will encourage developers to deliver well-located new projects which could command rental premiums.

In cities such as Amsterdam and Brussels, vacancy rates remain relatively high for Grade B offices and secondary locations.

There are opportunities to gain value through the redevelopment of such properties, and through change of use to residential or specialist sectors.

On office space supply, Sim anticipates that the improvements in office demand will spur more new developments this year.

“Development activity is likely to be shaped by the current polarisation of office demand, with occupier interest most strongly focused on prime city centre space, while older and less well-located offices struggle to attract tenants,” he said.

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