According to Savills latest European office market report, prime rental growth rose higher than expected in H1 2014 to 4% on average in the surveyed areas compared to -0.6% in H1 2013. The firm finds that in H1 2014 secondary rents also posted the strongest growth in the past five quarters at 2.4%.
According to Savills latest European office market report, prime rental growth rose higher than expected in H1 2014 to 4% on average in the surveyed areas compared to -0.6% in H1 2013. The firm finds that in H1 2014 secondary rents also posted the strongest growth in the past five quarters at 2.4%.
Julia Maurer, Savills European research, comments: “The strong rental growth indicates that the improved business sentiment is being reflected in tenant demand for Grade A office space, which is increasingly failing to be met by sufficient supply. Overall rental growth was positive in almost three quarters of the markets covered in the survey with Dublin and London City posting the highest increase at 33% and 27% respectively.
“We predict prime CBD rents across Europe will grow by 3.4% on average this year. Dublin and the London markets of the West End and City will continue to drive growth as will Munich where there is an ongoing mix of stable demand and constrain of Grade A supply.”
Savills reports that total take-up in the survey area reached 3.9 million sq m, which is in line with total volumes in H1 2013. Year-on-year the letting activity picked up strongly in Dublin, Paris and London City at 58%, 24% and 20% respectively. Whilst Warsaw, Vienna, Dusseldorf and Frankfurt all saw a decline of 20%. Savills predicts that office take-up across European markets should be broadly in line with last year’s level to reach 8.3 million sq m in total, with Paris and Lisbon set to see a strong increase in activity.
Savills states that as a result of stable demand and falling completion levels, the average vacancy rate has fallen further to 9.6% from 10.1% in H1 2013. Additionally, Q2 2014 also marks the fifth consecutive quarter where vacancy across the European office markets has fallen. The variation between markets continues to be high with the vacancy rate below 5% in Berlin, London West End and Stockholm. However, in almost half of the markets surveyed it is still above 10%.
Julia continues: “The average vacancy rate should continue to decrease, to below 9.5% at the end of the year with only the German cities seeing a significant rise in new developments. Vacancy will also remain very much concentrated in the secondary market.”