Overall vacancy rates have continued to decrease across Europe, according to international real estate advisor Savills, with an average rate of 10.1% in H113, compared to 10.3% in H112.
Overall vacancy rates have continued to decrease across Europe, according to international real estate advisor Savills, with an average rate of 10.1% in H113, compared to 10.3% in H112. The demand for new high spec accommodation brought about by a shortage of prime office space in all cities, especially within the European CBD, has highlighted availability in secondary offices and locations which may lead to Grade B office stock upgrades.
Savills reports that average prime CBD rental growth in the area surveyed turned negative in the second quarter of the year at nearly -1% compared to 1.4% in Q212. However different patterns in core and peripheral markets persist with the annual prime CBD rental growth in core markets at 1.8% whilst it is -6.8% in peripheral markets.
The average prime non-CBD annual rental growth increased by 0.3% due to a lack of prime properties available in the market, which has led some submarkets to benefit. The overall growing stock of grade B office buildings is putting downward pressure on rents.
Lydia Brissy, Savills European research, says: “A good level of lettings in non CBD districts is resulting from the shortage of prime office space in the traditional business districts. The overall picture for occupier demand is showing signs of a brightening spell in some markets as consumer confidence is improving.”
In terms of development activity, Savills reports that it is mostly driven by turnkey and refurbishment projects. The firm does not expect to see major speculative development in the future until economic prospects and financial conditions improve. Grade B stock is likely to grow unless significant upgrading is undertaken or asking rents are attractive but on the other hand, the lack of prime product available in the market notably the CBD is likely to restrain office demand as soon as it will pick up. Savills predicts an average prime CBD rent change of -0.8% pa at the end of 2013 with the gap between core and peripheral narrowing as prime rents rise, for example Dublin is set to see 11% increases. Downward pressure on secondary rents will continue overall.
Lydia Brissy continues: “Non CBD districts could take advantage of the current situation by offering more attractive rents. Those submarkets that have benefited from demand spilling out of the CBD have generally offered a reduction in asking prices.”
According to the report, many of the markets surveyed are seeing letting activity driven by the Technology, Media and Telecoms (TMT) sector. This is notably the case for London’s West End with its recent letting to Google but also in London’s City Market, Manchester, Amsterdam, Milan and Paris. Meanwhile, some cities have shown exceptionally high annual take up including Madrid (+54.9%), Manchester (+45.3%), London’s City market (36.8%), London’s West End (+21.1%), Vienna (+22.2%), Brussels (+21.3%) and Dusseldorf (+14.7%). However, in some cases this growth is due to a handful of very large lettings, and not necessarily indicative of a wider market recovery.”
The European markets that Savills monitors include Paris, Athens, Madrid, Stockholm, Warsaw, Cologne, Berlin, Frankfurt, Dublin, Milan, Amsterdam, Lisbon, Munich, London (City, West End and Thames Valley), Hamburg, Brussels, Dusseldorf and Vienna.