KUALA LUMPUR: More than half the markets surveyed by Savills in its latest European office market research report are expected to record positive year-on -year (y-o-y) prime rental growth at end-2012.
According to the report, the office rental growth is due to decreasing availability of prime space in the central business districts (CBD). These markets include London’s West End (where the firm expects a y-o-y rental growth of 7.3%), Brussels (5.5%), Lyon (8.7%), Dusseldorf (5.8%) and Hamburg (4.3%).
Overall, the international real estate adviser forecasts that prime CBD rents across European office markets will increase 1.4% on average by year-end. “This relatively limited increase reflects a two-tier situation as certain European markets continue to experience a slowdown in occupational activity and rental growth due to the ongoing eurozone challenges,” the report stated.
“Our office rental matrix shows that most of the office markets are in line with their 10-year averages, with some regional variation. The technology, media and telecoms (TMT) sector proved to be one of the strongest sectors in the first half of 2012, particularly in Paris, Dusseldorf and Milan.
Together with business services, the TMT sector held up demand,” said Lydia Brissy, Savills’ European research director.
|The office rental growth is due to decreasing availa-
bility of prime space in the central business districts
of markets like London's West End, Brussels, Lyon
Take-up across European office markets decreased on average by 4.2% y-o-y in the first half of 2012, which the consultancy attributes to overall economic uncertainty. However, some markets recorded robust demand levels, including Amsterdam and Brussels, where take-up increased 65% and 10% respectively in 1H2012. The firm expects this healthy demand to continue in 2H2012.
Despite the overall decreased take-up, Savills forecast that the average vacancy rate across European office markets will drop marginally to 10.3% by year-end from 10.4% at the end of 1H2012, with some significant regional variations.
In certain markets, Savills observed a significant increase in the level of refurbishments of existing offices with the share of these rising from below 10% to a quarter of all office completions in markets such as Madrid (26%) and Milan (25%).
Julia Maurer, Savills European research analyst, said: “Looking ahead, we expect demand in the second half of 2012 to be stronger than in 1H and anticipate that in some of the core markets, such as Amsterdam, Frankfurt and Brussels, the total 2012 take-up will exceed 2011 levels. On a pan-European level, we anticipate the average take-up volume in 2012 to come in below 2011 as ongoing eurozone uncertainties impact occupier demand.”
In terms of transactions, the majority of lettings are below the 3,000 sq m mark, with larger deals remaining relatively rare. The firm attributes this to a continuing trend for occupiers to relocate to premises with reduced rents often linked with downsizing.
European office market report is compiled from the analysis of 21 European markets — Amsterdam, Athens, Berlin, Birmingham, Bristol, Brussels, Dublin, Dusseldorf, Frankfurt, Hamburg, Lisbon, London City, London’s West End, Lyon, Madrid, Milan, Munich, Paris, Stockholm, Vienna and Warsaw.
This article first appeared in The Edge Financial Daily, on Oct 5, 2012.
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