Rental level for prime offices remained stable in most major European markets in Q1 2012, with the CBRE EU-27 Prime Office Rent Index edging up by 0.1% during the period.
The stability of CBRE's index masked modest increases in a handful of European markets, notably in Hamburg (+4.3%) and Nordic markets, such as Oslo, and declines in southern Europe and Ireland reflecting the ongoing effects of the economic difficulties in the Eurozone. Overall, office rents across Europe increased 0.4% from a year ago.
Richard Holberton, Director, EMEA Research, CBRE, said: "As the economic challenges in Europe continue, we are seeing a more pronounced divergence in the performance of key office markets. Where economic and political uncertainty is most acute, most obviously Greece, but also Spain and Portugal, the office markets either remain in decline, or are showing very limited signs of recovery.
"In the more robust economies, such as Germany, or those that are largely outside the Eurozone, such as the Nordic markets, there are more positive signs. With the economic challenges set to continue throughout the rest of the year, we expect the polarization of European office markets to persist."
For the past 18 months, uncertainty in the Eurozone has had an adverse effect on corporate decision-making, with several occupiers avoiding large new space acquisitions until the outlook becomes clearer. In Q1, take-up across Europe was down 9% compared to the same period the previous year, with significant declines in Milan, Dublin and Madrid.
Take-up in London in the first three months of the year was comparable to the same period last year (+1%); meanwhile significant increases were evident in Moscow (+25%) and Frankfurt (+60%).
Development completions are bottoming out in many European markets, reflecting the low level of construction since 2007, largely due to the scarcity of development finance. In a handful of markets, notably London, there are signs that completions will increase next year and beyond (completions in London in 2013 are expected to increase 67% year-over-year to 458,000 m²). However, completion forecasts are susceptible to revision, with some office developments likely to be delayed due to difficulty in raising finance.
Despite the low levels of new office stock being completed in European markets, vacancy rates only decreased marginally in Q1 2012, down to 10.25% from 10.35%. This is mainly attributable to weak demand and occupiers opting to rationalize their portfolios and dispose of surplus secondary space. Again, there is a link between vacancy rates and economic confidence, with rates increasing in some southern European markets, notably Madrid and Milan, and declining in Germany, some Nordic markets and Moscow.