King Sturge will be launching its latest research report, European Office Property Markets 2007, at Expo Real in Munich today. This yearly publication analyses the major city office markets of Europe and identifies the key trends.
Western Europe: the safe haven at the top of every investor's list
With the current volatility of the stock market, investment in property assets will continue to be the first choice of many. We expect investors to be cautious over the next 6 months and one of their key objectives in 2007-8 will be to manage risk. Therefore it is anticipated that core cities such as Paris, London and Madrid will continue to generate much interest, together with the major German cities, particularly Frankfurt and Munich. In addition, many will remember the fundamentals of stock selection and asset management as the period of rapid capital growth is ending.
- Over the period to 2010, unemployment for the EU27 is expected to fall from 7.4% to 6.8% keeping occupiers demand steady.
- In Western Europe, estimated growth in total take-up is expected to reach 8.4% at the end of 2007, a 70bp increase on 2006.
- Prime office rental growth in Western Europe is expected to end the year at around 10.8% compared with 4.4% in 2006.
Central and Eastern Europe: investors are heading for the regional cities
The current economic backdrop in Central and Eastern Europe is characterised by generally strong economic activity and low unemployment rates. In the region, low vacancy levels mean that we expect very strong rental growth in cities such as Warsaw where the demand for high-quality office space is increasing. This translates into a good opportunity for investors and in some cases they are heading for the regional centres in search of further value, as yields are at "Western European" levels in the capital cities.
- In Central Europe, despite a robust year of growth, total take-up is expected to dip by 2.8% over the year. This is mostly accounted for by a slowdown in Prague after the record demand in 2006.
- In Central Europe, rental growth "bottomed out" over 2006 and 2007 promises very strong growth of over 20%.
This year, the quest for office product has pushed average prime office yields from 5.40% in 2006 to an expected 4.80% by the close of 2007. As we look forward to 2008 the weight of institutional money is still significant and should maintain interest in the markets across Europe. Even if some investors sit on the sidelines in the short term, awaiting an element of re-pricing, volatility should create opportunity.
Source: King Sturge