Europe's economies continue to show encouraging signs of economic recovery according to Jones Lang LaSalle's Q4 2009 European Property Clock.
However, the time lag between the wider economy and European office occupier markets remains evident. There are also significant differences between markets in terms of their position in the rental cycle, with certain markets expecting to see prime rental growth in 2010 with others still expecting declines.
On a regional level, the European Prime Office Rental Index based on the weighted performance of 24 markets, which decreased by 0.8% in Q4 2009, after having seen a similar decline in Q3 2009.
Prime office rents across Europe now stand on average 13.6% below the level recorded a year ago and 16.8% below the peak seen in Q2 2008. Over Q4 2009, prime office rents decreased further in nine of the 24 index markets, ranging from -4.3% in Warsaw and -1.7% in Munich. Among those markets were other big German markets such as Frankfurt (-2.9%), Berlin (-2.4%) and Dusseldorf (-2.2%), which have so far been behind the European cycle. London, which has seen prime rents drop nearly 35% since their height, is now the first market to have reached the end of its decline phase and an increasingly confident market suggests prime rental growth will be proven in Q1 2010.
Chris Staveley, Director of EMEA Capital Markets team at Jones Lang LaSalle, said: "While economic prospects improve, labour market fundamentals are weak and remain somewhat based on governmental stimulus. Business confidence across Europe continues to improve from record lows in early 2009 but companies remain cost sensitive. However, some companies are taking the opportunity of the low rent environment to secure prime space or renegotiate leases."
Demand for office space increased by 28% over the quarter and reached 2.8 million m² about the same level as in Q4 2008, bringing the annual take-up for 2009 to 9.1 million m². However, compared to 2008, office demand in 2009 was 26% lower and stands 23% below the five-year average. Overall, 16 of the 24 index markets showed increased levels of take-up over the quarter led by Amsterdam, Brussels and Madrid though rising from low total levels.
Chris Staveley, concluded: "In Q4 2009, the Jones Lang LaSalle European Property Clock positions reflect the differentials across the region. What is worth highlighting is the extent to which centres have moved in the final quarter, with London, Oslo and Warsaw no longer expecting rental declines. Other markets, however, are still to see continuing rental reductions.
Despite the significant variations between markets, the forward shift seen by the vast majority, and the fact we have seen the first markets at, or near 6 o'clock, shows the extent and speed which markets have moved through their cycles. Notwithstanding the continuing economic and property market risks by year end 2010 we can expect certain markets to enter the rental growth phase, well ahead of market expectations made just six months ago."
Source: Jones Lang LaSalle