According to Jones Lang LaSalle's Q4 2008 European Office Clock overall take-up volumes were down 27% on Q4 2007, whilst quarter on quarter the fell only slightly in Q4 2008, down 2% from Q3 to just below 3 million m².
Commenting on the Q4 figures, Chris Staveley, head of Jones Lang LaSalle's Cross Border team said: "At the end of 2008, 15 markets on our European Office Property Clock were in the quadrant we define as 'rents falling'. One of them was Moscow, where prime rents dramatically fell by 26% during the fourth quarter. In 2009 further downward pressure on rents will be seen for the most European markets."
In Western Europe further rental falls during Q4 2008 were reported in London West End (-11.6%), Dublin (-5.2%), Barcelona (-3.8%), Brussels (-3.5%) and Madrid (-1.8%). Stockholm (-6.8%) and Milan (-3.5%) entered the rents falling quadrant on the Office Clock for the first time in this cycle. Conditions have changed dramatically in some Central and Eastern Europe markets with prime office rents decreasing by 26.3% in Moscow and 15.2% in Warsaw during Q4, although rents in Budapest and Prague stood firm. All other European markets recorded stable prime rental levels with only Lyon recording positive prime rental growth of 2% on the quarter. As a general trend rental incentives increased over the last quarter, including those markets where prime face rents remained flat.
Overall take-up during 2008 reached 12.5 million m² which is 12% down on 2007 volumes, which is surprisingly 12% above the five-year average. On a city level, the highest falls during 2008 were recorded in Dublin (-40%), Madrid (-38%), Stockholm (-36%), Barcelona (-23%) and Edinburgh (-20%). Activity also decreased in Europe's largest markets, London (-15%) and Paris (-14%). In the German markets the decrease in office demand has been smaller in comparison to other European countries; however, take-up volumes are falling, too. Only six out of 24 markets recorded take-up volumes above levels witnessed in 2007, these were: Luxembourg, Prague, Rotterdam, Milan, Warsaw and Budapest.
Total Net Absorption
Total net absorption remained surprisingly strong with annual net absorption reaching 4.6 million m² in 2008, 2.2 million m² fewer than the previous year. However, quarterly net absorption turned negative in London, Paris and Dublin in Q4 2008.
Vacancy rates in Europe range now from just 1.9% in Luxembourg to 16.8% in Dublin. Over the quarter the overall European average vacancy rate increased from 7.2% to 7.7%. Whilst in the Western European markets vacancy increased by only 20bps to 7.4%, Central and Eastern European office markets witnessed a 340bps increase to an average of 11.5%. On a city level, high completions and deteriorating demand forced Moscow's vacancy rate to increase from 3.2% to 14.3% over the last 12 months, with the biggest jump in Q4. Over the quarter, vacancy also increased significantly in Dublin (+170bps to 16.8%) and Budapest (+100bps to 13.9%).
Only six markets saw vacancy decreasing, though only very slightly, these were led by Utrecht (-30bps to 8.8%), Edinburgh and Brussels (both -20 bps to 4.3% and 9.2% respectively), Düsseldorf, Luxembourg and Stockholm (all -10 bps).
Chris Staveley concluded: "Given the weakening economic outlook for European office market, and major job cuts are now occurring in various business sectors therefore office demand is expected to suffer further in 2009. The financial centres of London, Paris and Frankfurt being particularly at risk from deteriorating levels of occupier demand."