Delivery of many office development schemes which commenced during the real estate boom period will complete in 2009 across markets in Europe, Middle East and Africa (EMEA), leading to greater choice of good quality office space for occupiers in the short term, according to the latest research by CB Richard Ellis.
In some cities, such as London and Prague, the vacancy rate has increased by over 4% in the last year.
An acceleration of speculative completions is now expected in the second half of 2009, meaning that completion levels this year are likely to exceed those in 2008. Yet with new completions expected to drop in 2010 as developers continue to suspend projects not already under construction, occupiers' choice of new buildings will become much more constrained from 2011 as the market faces a more restricted development pipeline than in previous cycles.
Occupiers looking to relocate to non-core submarkets or rationalize their space are taking advantage of the current loosening supply conditions. CBRE's EU-27 vacancy rate index has risen from 6.7% in Q1 2008 to 7.8% in Q2 2009. In some cities, such as London and Prague, the vacancy rate has increased by over 4% in the last year. Not only is there more choice of space, but occupiers are experiencing greater lease flexibility as recessionary conditions have eroded tenant demand by a third on both a quarterly and annual basis across all primary Western European markets.
Widespread falls in office rents are present in all major European markets, adding further weight to tenant negotiations, with London and Madrid rental falls most prominent and large adjustments in CEE markets. CBRE's EU-27 office rent index fell by 3.5% for the second consecutive quarter in Q2, taking the year-on-year decline to just under 10%. Even in those markets where rents remain stable, such as Frankfurt and Milan, longer rent-free periods and other incentives are being granted and it is increasingly possible to negotiate shorter leases.
Matthew Pullen, Head of Global Corporate Services EMEA, CBRE, said: "Worsening economic conditions across Europe have continued to force occupiers to rationalize their real estate portfolios. We expect further contraction in demand for space across the region, which will keep landlords under pressure to offer flexibility to tenants. However it is important to emphasise that occupiers must really try to understand their landlords' unique circumstances before attempting negotiations so that they are not asking for the impossible and risking inertia."
"Occupiers generally only have about a 12-month window of opportunity to take advantage of existing market conditions, so it is imperative that corporate real estate functions ensure that they have an optimum portfolio occupation strategy in place now, to implement in the final quarter of the year," Pullen concluded.
Judit Varga, Head of Office Agency at CBRE Hungary added: "Budapest fits well into the European trend. The development volume reaches its yearly peak in 2009, however, no new developments have started since the beginning of the year. We only expect the handover of those projec