Colliers International's latest overview of 68 office markets in 37 countries across the Europe, Middle East & Africa region shows a sharp increase in vacancy rates, a continuing decline in rental levels and a dramatic increase in tenant incentives in the first half of 2009. The report makes clear that not all have experienced the same effects. Major falls in rental levels in Dubai and Moscow, combined with the strengthening of sterling, have put London's West End once again at the top of the table as the most expensive office market in the region.
With continuing economic troubles throughout the region and weak demand for office space, the vacancy rate across the EMEA region rose to 9.7% at mid-year. This represents an increase of almost 2 full percentage points during the first six months of the year and brings the EMEA vacancy to its highest level since the end of 2004.
Leader of Colliers EMEA's Office Business Team, Craig Satchwell said: "Although the rise in vacancy was felt across the region, it was seen most dramatically in the Baltic States, Ireland, Romania, Turkey, Ukraine, the United Arab Emirates, and the United Kingdom".
Eight EMEA cities are now registering vacancy rates of 20% or higher. Colliers EMEA's Regional Research Coordinator, Kate Lawler, compares this to the situation six months ago, when the highest vacancy rates in the region were around 15%. "Although the rising vacancy is reflected across the region, the largest reported increases were in Eastern Europe and the Middle East. Sub-leasing is becoming more widespread in some of the newer markets, which means that the effective vacancy rate is likely to be even higher than has been reported."
With the level of vacancy increasing, Class A rents fell by a further 4.5% in the first half of 2009, following a 6% drop in the second half of 2008. Eastern Europe and the Middle East saw the largest declines, as recent construction booms took their toll in Abu Dhabi and Dubai as well as Moscow, Saint Petersburg and Kyiv.
With a few exceptions, markets in Western Europe fared somewhat better in the first half of the year, as rents in Belgium, France, Germany, The Netherlands, Switzerland, the United Kingdom, and the Nordic countries decreased only marginally. Owing to severe rental declines in Dubai and Moscow (and aided by the greater strengthen of sterling), London regained its position as the most expensive office market in the region, with current average Class A asking rents in the West End sub-market at EUR 63/sqm/month, although generous tenant incentives are keeping headline rents artificially high. After London's West End come Paris, Dubai, Moscow, and Milan.
The total amount of office space under construction is down 8% from year-end 2008 and 23% from mid-year 2008, evidence that development pipelines have slowed dramatically. Nevertheless, the report suggests that a further increase in vacancy and continuing rental declines are expected over the second half of 2009.
Craig Satchwell notes that current market conditions have encouraged many tenants either to renegotiate more favourable lease terms or to move into markets and/or properties that they had previously considered too expensive. "There has also been a dramatic increase in tenant incentives. Across the region, we are seeing long rent-free periods - in some cases up to several years on long contracts. As a result, some markets, including the UK, are experiencing increased occupier interest as tenants seek to take advantage of these excellent terms while they are available."
Source: Colliers International EMEA Region