International real estate advisor Savills reported some improvement in the European office market in Q2 leasing activity. The quarter on quarter (Q1 to Q2) increase in take up of 23% results in a H1 09 total take up of -47%, and improves the annual forecast to -35%. The data studies nine major European office markets.
Eri Mitsostergiou, Savills European research comments: "We have seen that some tenants are using the current market conditions to seek cheaper accommodation, thereby increasing take-up in certain markets."
The demand for lower rents and the fact that many tenants are also renegotiating the terms of their leases have caused prime office rents to fall across the European office market. However, prime CBD rents in Q2 only dropped by -4% compared to -6% in Q1 on a quarterly basis. Currently prime CBD rents in the nine major office markets in Europe are 15% lower compared to Q2 2008. According to Savills, this downward trend is set to continue overall but might ease for the prime end of the market, and the firm forecasts an average annual decline of -10%.
Savills reports that prime CBD office yields in the survey area shifted by -11 basis points in Q2 compared with +58 basis points year on year (2008 to 2009). The investment market may therefore show the most promising improvement despite a drop in total investment volumes in the first half of the year by 69% compared to the same period in 2008. The total volume drop in Q2 has stabilised compared to Q1. Savills predicts this is due to improving investor sentiment and may cause prime yields to begin to stabilise. Savills forecasts an average annual change of +25-30 basis points for prime CBD office yields by the end of the year compared to +85 basis points last year.