EMEA office rental growth shows divergence

LONDON: The majority of office markets in Europe, the Middle East and Africa (EMEA) have reported flat rental growth in the first half of the year, according to real estate consultancy Colliers International in its biannual EMEA Office Rent Map. Looking forward, the outlook for Class A rents is broadly flat throughout the region with the majority of centres forecasting zero rental growth for the next 12 months, said Colliers.

However, a few markets have reported either very strong or very negative growth, Notable at the top end have been the key Russian markets — Moscow and St Petersburg — which reported half-year rental growth of 11% and 10% respectively. The London West End market also reported a rise in rents of circa 10%.

Markets that experienced negative growth include Athens (-7%), Dubai (-8%) and Sofia (-8%). These falls being mainly a factor of deficient demand in Athens, and an excess of office space in Dubai and Sofia.

While a majority of the centres Colliers monitors reported flat yields or marginal compression over the first half of the year, the two main Russian markets were, again, the standout performers, reporting yield compression of -100bps in Moscow and -200bps in St Petersburg, with yields now standing at 9.5% and 11% respectively.

Other markets that saw notable inward yield shifts were Durban, -100bps to 12%, and Abu Dhabi, -300bps to 10%. In contrast to Abu Dhabi, Dubai saw a further widening of yields, 170bps to 10.7%, reflecting further concerns over the over-supply issue in the city.

Some of the weaker markets such as Dubai and Sofia expect further falls in class A rents while major centres such as London, Moscow, Munich and Stockholm are expected to see further increases.

The outlook for prime yields is flat across almost all of the cities. However, cities such as Abu Dhabi, Brussels and Prague are expected to see some yield compression as investors seek attractive yields outside of the core office markets which have already seen notable compression.

The Colliers International EMEA Office Rent Map includes class A rents, yields, vacancy rates and construction levels in the major markets across the region.

This article appeared on the Property page, The Edge Financial Daily, September 23, 2011.

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