Falling vacancy rates
Vacancy declined in 15 of the 24 European office markets tracked by Jones Lang LaSalle, with overall vacancy in Western Europe falling by 20bps to 9.4%. This was driven by declining vacancy in London, German markets and Amsterdam. Overall vacancy in CEE declined by 60bps to 14.4%, driven by falls in Moscow and Budapest.
Completions up in Q4 but down 43% across full year
New office space completions increased also jumped in the fourth quarter of 2011 by 41%, passing 1 million sq m, after a year which witnessed the lowest quarterly volumes for a decade. Completions in 2011 as a whole were 43% below the 10 year average. This, together with leasing volumes that were ahead of expectations, drove the supply reduction.
Prime rents unchanged
In Q4 2011, only four of 24 European Office Index markets measured by Jones Lang LaSalle saw rental increases. These were Rotterdam ( 2.6%), Berlin ( 2.4%), Düsseldorf ( 2.1%) and Paris ( 1.3%). The only two falls were in the Spanish markets of Barcelona (-1.3%) and Madrid (-1.0%). Office take-up for Q4 2011 was 2.9 million sq m, which was down 2% compared to Q3 2011, although this was down 9% year-on-year. However, 15 of the 24 markets measured saw take-up volumes exceeding 2010 volumes, led by Prague ( 81%), Munich ( 52%), Luxembourg ( 44%) and Paris ( 15%). London was markedly down compared to 2010, with volumes 45% lower. Jones Lang LaSalle expects leasing volumes to remain subdued over 2012 with activity very dependent on the outcome of Eurozone deliberations. Further supply erosion can be expected as new completions will remain limited, albeit at a slower rate than 2011. Prime rents will remain broadly stable at the European level.
Net-absorption increases
The annual rate of net absorption, representing the change in occupied stock was 3.3 million sq m, an increase of nearly 5% over the quarter but 13% below 2010 and 10% off the 10 year average. Bill Page, Director, EMEA Research at Jones Lang LaSalle said:
“Office vacancy will continue to fall, although the reduction will be gradual. Occupiers will look to re-absorb surplus space before looking to move elsewhere. The pipeline for completions is more positive but with finance in short supply we can expect to see further postponements and cancellations.”
European investment volumes increase 13% compared to 2010
European office investment volumes for 2011 will exceed €115bn, an increase of 13% in comparison to 2010. This was fuelled by strong growth in the UK, with marked increases in Scandinavia ( 33%), Germany ( 28%), France ( 26%), Russia ( 81%) and Poland ( 33%).
Prime office capital values grew marginally at 0.1% over the quarter, whilst five markets saw yields change. Strong investor demand saw yields compress in Luxembourg (-25bps), Düsseldorf (-20bps) and Frankfurt (-5bps) whilst yields increased in Madrid ( 50bps) and Milan ( 15bps). Chris Staveley, Head of EMEA Office and Industrial Capital Markets, Jones Lang LaSalle added: “Sentiment remains fragile but investors continue to focus on core European markets that have stronger economic fundamentals. Demand for office product in 2012 will be maintained, with prime product highly-sought. However, by the second half of 2012, the best rental growth prospects for 2013 are likely to be in more diverse markets.”
Rita Tuza, Head of Research, Jones Lang LaSalle Hungary commented: “Despite the unfavourable macroeconomic environment and the negative press coverage that Hungary received in the foreign media, 2011 turned out to be a really successful year in the Budapest office leasing market so as in the capital market. We registered a sharply decreasing vacancy rate from its peak at 21% in Q1 to 19.2% by year end, while annual take up grew by nearly 29% year on year and amounted to almost 400,000 sq m. Meanwhile the value of the transacted office properties in the country was more than five times as much as in 2010, totalling close to €353 million, which is the highest volume since 2007.”
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