Aggregate office take-up across Europe reached 2.5 million m² in Q2 2013, up from 2.1 million m² recorded during the previous quarter according to DTZ’s latest analysis. The rolling annual take-up, at 10.9 million m², represents a modest 2% increase.
In the majority of European markets, expansion plans have been put on hold by corporate occupiers as the focus remains on cost savings in order to maintain profitability. As such, 11 out of the 28 markets covered in DTZ’s analysis experienced Q2 2013 declines in take-up, ranging from -1% to -70%.
Vacancy ratios have decreased marginally across Europe, with the regional average standing at 10.9% at the end of Q2 2013 from 11% in Q1 2013. This small decline is directly linked to the low level of new supply delivered during the quarter rather than increased occupier demand. The European office market continues to display a wide range of vacancy ratios, from 3% in Marseille to 21% in Dublin.
London and Paris continue to benefit from one of the lowest ratios in Europe, standing at 6% and 7% respectively. Over the last 12 months, the biggest declines in vacancy have been recorded in Istanbul, Birmingham, Manchester, Hamburg and Budapest whilst a strong development pipeline has pushed up rates in Geneva, Warsaw, Bucharest and Milan.
Since the start of 2013, only 2 million m² of new office space has been delivered across Europe, a level far below the peak of 7.7 million m² reached in 2007. Five cities – Moscow, London, Paris, Warsaw and Frankfurt – represented more than 60% of the new supply. Completion of new office space is expected to rebound in the second half of the year, pushing the annual volume to 5.7 million m² for 2013 as a whole. Moscow and Paris will lead the trend with 1 million and 750,000 m² respectively to be delivered in 2013. They are followed by the CEE markets (573,000 m²) and London (508,000 m²).
Prime rental values across the European office market have been stable over the second quarter, posting a modest q-o-q 0.2% increase and y-o-y 0.6% increase on average. The overall market picture is balanced between locations such as Bucharest, Kiev, Warsaw, Milan and Madrid where rents are still under downward pressure and on the other side, Moscow (+7.7%), and Istanbul and Frankfurt recording a 7% growth for prime rents on an annual basis.
Magali Marton, Head of CEMEA Research, said: “What we’ve seen in the first half of the year is occupiers remaining relatively cautious due to the ongoing weak economic backdrop and recession across much of the European economy. However, there are now tentative signs that economic activity will pick-up somewhat in H2 to show weak growth, which should support leasing volumes. In this context, we anticipate a 1.2% increase in prime rental values in 2013 and 1.6% in 2014. London West End and, more surprisingly, Dublin will witness the highest increases, with expected yearly annual averages of 5.9% and 4.6% respectively over the next five years.”