According to Savills survey on European office occupiers, non-Central Business District (CBD) locations are benefitting from recovering CBD rents in the wake of the global financial downturn.
According to Savills survey on European office occupiers, non-Central Business District (CBD) locations are benefitting from recovering CBD rents in the wake of the global financial downturn. The research looks at occupier trends across the key cities of Brussels, Paris, Amsterdam, Madrid, Berlin, Frankfurt, Munich and London comparing occupancy trends pre and post downturn. The firm finds that at the beginning of the downturn (2007-2010) rents fell on average by 15% in CBD locations, spurring many occupiers to take advantage of acquiring higher quality space in a prime location at a reduced price, hence CBD lettings accounted for 42% of take-up in 2010 against 33% in 2007. However, between 2010 and 2013 non-CBD locations in these cities recorded a 17% increase in take-up on average, accounting for two-thirds (64%) of overall take-up in the surveyed locations in 2013.
Eri Mitsostergiou, European research director at Savills, comments: “Cheaper rents in CBD locations during the economic downturn attracted more occupiers back into central areas. However, fringe locations across the main European cities are now providing stronger competition offering rising incentives and higher availability of modern space, resulting in cost conscious occupiers gradually returning to these non-CBD locations. Our data shows that in 2013, the average vacancy rate in the CBD’s of the markets we survey was up 6.4% compared to the overall average of 9%, reflecting the tight supply of prime space in the city centres.”
In particular, the international real estate advisor highlights that the cities that have seen the greatest change in favour of fringe locations between 2010 and 2013 are Amsterdam, where the share of take up in fringe locations increased by 27%, and fringe areas of London City and West End (+70%). The research finds that average prime non-CBD rents are currently 47% lower than CBD at €300 per sq m/year and Savills predicts these should remain broadly stable during 2014. The firm notes that the average prime CBD rent achieved at the end of 2013 was 5% higher than in 2007 and expects prime CBD rents in the areas surveyed to rise by 4% in 2014.
Savills data shows that overall take-up at the end of 2013 across the countries it monitors was still 30% below pre-crisis levels at 5.6m sq m and expects a similar level of activity in 2014. Looking forward the firm notes that a clear positive trend in take-up is subject to firm economic recovery, return of business financing and job creation and year end-year volumes will depend on the ability of respective markets to satisfy large-scale requirements.
When analysing office requirement sizes pre and post the global financial downturn, Savills found that large office requirements (over 1,000 sq m) have been a characteristic of most of the markets surveyed during the downturn underpinned by corporate consolidation needs. Throughout this time occupiers focussed on rationalising property portfolios and bringing their operations under one roof. During 2007 and 2010 the share of large deals of the total take-up in the surveyed areas increased by 18% on average to account for 26% of all transactions. In addition, the firm highlights that the average deal size between 2007 and 2013 has increased by 4% from 1,015 sq m to 1,055 sq m with the steepest changes noted in London (+20%), Berlin (+11%), Paris (+9%) and Madrid (+8%). However, total take-up during 2007 to 2013 dropped by almost a third as demand for small and medium size offices (up to 1,000 sq m) was weaker.
Piers Nickalls, Corporate Real Estate director at Savills, says: “Small and medium sized businesses across Europe were significantly impacted by the economic downturn, which hindered their growth plans, as a consequence their share of leasing activity has decreased by 6% since 2007.”
In terms of sector specific take-up, Savills research shows that the TMT sector and the distribution and retail sector have increased their share of take-up during the period 2007-2013 from 15% to 19% and from 6% to 9% respectively. The firm expects the rising importance of these sectors in the economy and in the property market to continue.