A high share of renegotiations, incentives to tenants and increased pressure from occupiers to lower rents were the main features of the office market in Europe during Q3 2009. Unsurprisingly, in the first nine months of the year the total amount of office space transacted amounted to only around half the level recorded during the same period in 2008. The results from Czech Republic are similar.
"In Prague net take-up reached less than 95,000 m², which is a 52% decrease compared to the Q1-Q3 2008," comments Lenka Hartmanová, Consultant at global property adviser DTZ, which released the new study.
Despite the general situation, there are European markets where the take-up increased q-o-q due to the halt of rental decrease, such as in Paris CBD, London City and London West End as occupiers anticipate the current rental cycle is close to reaching its trough.
Availability continues on an upward trend in most markets, taking the average availability ratio in Europe to 9.5% at the end of September. Availability is expected to increase further as the recovery in employment is expected to lag the broader economic recovery. The opposite trend can be seen in rents that have decreased since the beginning of the year by 11% with the steepest rental declines being recorded in Kyiv (-56.3%) and Dublin (-30%). In Prague the rental decrease has been 8.7% since the start of the year.
Prague is likely to remain in line with the European average rental decrease at year end. According to estimates by DTZ the rents in Prague will see a decrease of 13% from the start of the year, while the European average will amount to 13.4%. This is interesting also with respect to the fact that the landlords did not provide such incentives to tenants as was the case in some other European cities. In London City the incentives reached a record 44 months on a 15-year lease. In Prague, it is possible depending on the size of the requirement, location, covenant strength of the tenant and with the help of real estate advisors to reach three to five months rent-free period for a standard five-year lease, and up to 50/m² of fit-out contributions. For bigger requirements of more than 3,000 m² and for leases longer than five years the incentives can be double the average.
In London City, Paris and Warsaw the rents are bottoming out, in other European markets they are likely to continue on a downward trend throughout 2010 albeit at a considerably slower rate than in 2009. For Prague DTZ predicts a slight downward correction depending on type of building and location. "During 2010 the rents are expected to stabilize," concludes Lenka Hartmanová.