International real estate advisor Savills expects new supply across European office markets to remain low in 2012 keeping supply and demand in balance and averting a double dip scenario, especially for the core European markets.
The firm forecasts that low supply will lead to a further decline in overall vacancy rates to 10.4% in the first quarter of 2012. In terms of new supply Savills forecasts that completions in 2012 will be 35% lower than in 2010.
Savills forecasts an average rental growth of approximately 1.9% for prime CBD offices in core European markets in 2012 and an overall average growth of 0.2%. The firm's European prime CBD office rental matrix shows that Paris, Milan and Stockholm rents stood more than 15% higher than their 10-year average at the end of 2011, with Munich and London West End also achieving above average growth rates. In 2012 the firm projects Vienna, London City and Paris will see the highest percentage prime CBD rental growth at +19%, 13.6% and 6.7% respectively.
Eri Mitsostergiou, European Research Director, says: "Overall demand remains in balance with supply across European office markets, creating stability for prime CBD rents. There are of course regional disparities between core and peripheral markets, reflecting the difficult market conditions that persist in parts of Europe."
Savills notes that take-up decreased by 1.6% year-on-year on average in the final quarter of 2011, when signs of a slowdown of the European economy became more evident. According to the firm's estimates most markets will report weaker year-on-year occupier activity in Q1 2012 except markets where Q411 take-up levels were considerably below their annual average, such as Dublin and Amsterdam.
Mitsostergiou continues: "It's crunch time again for Europe and tenant demand is generally weakening under the impact of negative business confidence. This uncertainty is also impacting on the construction sector, with new supply expected to remain low."