The recent decline in office demand in the major European cities has led to a flood of negative commentary on the state of the market and the underlying strength of the property market. This underlying strength is particularly important at the moment because so many investors are disregarding current weaknesses on the occupier side, considering real estate a safer haven for capital than equity markets.
The CB Hillier Parker EU office rent index has documented the changes in rents across the main European markets since 1986:
At its peak in the last cycle in Q3 1991, the index reached a value of 229. Compared to the current value of 253, this means that, on average, across Europe rents have increased by only around 10.5% over the last 11 years, in real terms a significant fall. As can be seen from the table below, the pattern is patchy because of the different timing of the cycles in European cities. In 1991 rents in London, for example, had already fallen significantly from their peak.
A very different picture can be painted by measuring performance from the bottom of the last cycle. The index declined to a low of 162 in Q4 1996. Compared to this point, even after their current fall rents have still shown growth of 56% over just under 6 years. This represents a very strong growth rate of 8.1% pa.
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(source: CB Hillier Parker)