Despite weakening economic sentiment and the ongoing tensions in financial markets, occupier demand across office markets in Europe, the Middle East and Africa (EMEA) remained broadly stable in 2011 and similar to levels observed in 2010, according to latest research from CBRE.
Some of the major office markets including Paris, Milan and Munich saw significant increases in leasing activity relative to their 2010 levels.
Demand from technology, media and telecommunications (TMT) companies has been a key driver of office space growth in a number of markets. For example Amsterdam, which is seen as a connectivity hub and of strategic importance to TMT occupiers, experienced a 15% increase in take-up year-on-year in 2011. Dublin also echoed this trend to an even greater extent with a 29% increase in office take-up compared to the previous year.
In addition, in some markets occupier demand is focusing more on central business locations, effectively a recentralization process, as corporates take advantage of subdued rents to upgrade premises. This is itself contributing to some rental growth at the prime end of these markets. While prime rents across the region remained static in Q4 2011, with the CBRE EU-27 Office Rent Index edging up only slightly (0.2%), parts of the Central and Eastern Europe region continue to see growth.
Prime rents rose in Q4 2011 in Moscow (4.3%) and Warsaw (3.8%), for instance, as a result of occupiers seeking locations in very central areas. This trend is counterbalanced by the need for corporates to control costs, as this remains a key factor in locational decisions, and there are some markets, such as Frankfurt, where the recentralization trend is far less evident.
The majority of European trends in office market could be also referred to the Moscow market.
In Q4 the level of new supply and take-up dropped considerably. We observed falling vacancy and an increase in rental rates for quality office space. The market saw continued geographical segmentation. In 2011 we registered high demand for quality office space in popular office submarkets such as the Central Business District (CBD, the area inside the Garden Ring), the area along Leningradsky Avenue and Highway, and the South-West sub-market.
As on European markets, high activity was registered among companies from telecommunication sector. Despite the general trends of Moscow and European markets the Prime rents increased only for office space in Moscow and Warsaw.
Claudia Chistova, Head of Office Research, CBRE in Russia comments: "In 2012 we expect the low level of new supply and stable demand for office premises. The best office space in new-delivered office buildings will be pre-leased before receiving the operational permit."
Richard Holberton, Director, EMEA Research, CBRE, said: "In 2012 the 'flight to quality' trend we are currently seeing in office leasing markets will run up against a diminishing supply of good quality prime space. New office space completions remain low throughout Europe, declining by 45% in 2011 compared with 2010.
"Interest in pre-lets is likely to grow as shortages of good quality space will continue to be an issue in many markets. Occupiers with a preference for, or tolerance of, secondary space will have a greater range of options available to them."
Despite ongoing economic uncertainty in Europe, rents across this region are closer to their pre-recession level than in Asia-Pacific, the Middle East or the Americas.
Globally, prime office rents remained broadly stable in Q4 2011, with the CBRE Global Office Rent and Global Capital Value Indices increasing by only 0.48% and 0.44% respectively during the quarter. The past year saw stronger rental growth than 2010, with the rent and capital value indices recording increases of 5.0% and 8.2% growth year-on-year respectively, mainly reflecting stronger growth in the first half of 2011.