According to Savills latest European office market research report over half of the markets surveyed will record positive year-on-year prime rental growth at the end of 2012 due to decreasing availability of prime space in the CBD. These markets include London West End (where the firm expects a y-o-y rental growth of 7.3%), Brussels (5.5%), Lyon (8.7%), Dusseldorf (5.8%) and Hamburg (4.3%).
Overall the international real estate advisor forecasts that prime CBD rents across European office markets will increase by 1.4% on average by year end. This relatively limited increase reflects a two-tier situation as certain European markets continue to experience a slow down in occupational activity and rental growth due to ongoing Eurozone challenges.
Lydia Brissy, European Research Director, says: "Our office rental matrix shows that most of the office markets are in line with their 10-year averages, with some regional variation. The TMT sector proved to be one of the strongest sectors in the first half of 2012, particularly in Paris, Dusseldorf and Milan. Together with business services, the TMT sector held up demand."
Take-up across European office markets decreased on average by 4.2% year-on-year in the first half of 2012, which Savills attributes to overall economic uncertainty. However, some markets recorded robust demand levels including Amsterdam and Brussels, where take-up increased by 65% and 10% respectively in H1 12. The firm expects this healthy demand to continue in H2 12.
Despite the overall decreased level of take-up, Savills forecasts that the average vacancy rate across European office markets will drop marginally to 10.3% by year end from 10.4% at the end of H1 12, with some significant regional variations.
In certain markets Savills has observed a significant increase in the level of refurbishments of existing office stock with the share of these rising from below 10% to a quarter of all office completions in markets such as Madrid (26%) and Milan (25%).
Julia Maurer, Analyst in Savills European research team, says: "Looking ahead we expect demand in the second half of 2012 to be stronger than in H1 and anticipate that in some of the core markets, such as Amsterdam, Frankfurt and Brussels, the total 2012 take-up will exceed 2011 levels. On a pan-European level we anticipate the average take-up volume in 2012 to come in below 2011 as ongoing Eurozone uncertainties impact on occupier demand."
In terms of deal sizes, Savills records the majority of lettings at below the 3,000 m² mark with larger deals remaining relatively rare. The firm attributes this to a continuing trend for occupiers to relocate to premises with reduced rents often linked with downsizing.