According to Jones Lang LaSalle's Q2 2009 European Office Clock Report prime office rents declined by 4.6% over the quarter, and now stand on average 15.4% lower then Q2 2008. The Index, which is based on 24 markets, shows that Moscow witnessed headline rental falls of 30%, followed by Dublin (-18%) and Madrid (-10%) over the quarter. London has experienced a year-on-year fall in prime rents of -32% and potentially has now reached the peak of rental decline. The overall European vacancy rate increased 80 basis points to 9.3%.
Chris Staveley, Head of Jones Lang LaSalle's Cross Border team, commented: "Despite early signs of improvements in economic and business confidence a significant proportion of occupiers across Europe are still reducing staff numbers and seeking to avoid the costs of relocation. While some tenants are looking to take advantage of current market conditions and secure high quality space in better locations, overall office demand remains low across Europe."
Office leasing volumes in Q2 2009 increased 9% from the previous quarter to 2.1 million m2 but sit 35% below Q2 2008 levels and nearly 30% below the five-year average. Take up in Central and Eastern Europe (CEE) increased to 0.6 million m2 and now stands 14% above the five-year average. Some significant increases in take up over the quarter were also reported in larger western European markets, notably Brussels (+51%), Madrid (+46%) and London (+43%), though they are based on comparatively low absolute numbers.
Although completion levels across Europe remain 30% above the five-year average, few new office developments commenced during Q2 2009. Despite difficult leasing conditions 1.9 million m2 of space was completed and added to the market, but this represents a 10% decrease over the quarter with several projects being cancelled or postponed. In the CEE region the average vacancy rate increased significantly to 14.6%, the highest level since 1999, while the Western Europe average rate reached 8.8%. Dublin recorded the highest vacancy rate (21.2%), followed by Moscow (18%) and Budapest (15%). Luxembourg achieved the lowest vacancy rate (3.7%) whilst Paris and London were among the markets with vacancy rates below the European average.
"With another 4 million sq m of space due for completion this year and with office demand expected to remain weak vacancy rates are going to continue to increase further over the year - the overall European vacancy rate could exceed 10% by the year end", concluded Staveley.
Olga Rybakova, Head of Office Research Jones Lang LaSalle: "We saw a rebound in demand for office space in Moscow in Q2. However the take-up level remains well below the pre-crisis volumes. Active supply growth, combined with weak demand, led to vacancy rate increase to 18% and put more pressure on rents. Rental rates decreased by 30% during Q2 2009, to $700/m2/year. With sizeable new space coming to the market in the near future, the vacancy rate is bound to grow, while rents have likely gone through the adjustment phase. We expect gradual stabilization of prime office rents in H2 2009."