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News Release

London

Signs Point to Increased Rental Growth Across European Office Markets

According to Jones Lang LaSalle’s Quarter 1 2011 European Office Clock


London, 28th April 2011Jones Lang LaSalle’s latest research reveals that prime rents across Europe grew modestly over quarter one 2011 (Q1 2011) though differences remain across markets.  Jones Lang LaSalle’s European Office Rental Index increased by 1.5 percent over the first three months of the year however this increase was nearly entirely driven by continued rental growth in London’s West End (+4.6 percent) and Moscow (+17.6 percent) with Lyon (+4.2 percent) and Dusseldorf (+2.2 percent) being the only two other index markets to experience rental growth. 

The debt problems in Spain, Portugal and Ireland continued to be a drag on rents in these economies; Spain’s office markets again experienced rental declines over the quarter (Madrid -0.9 percent and Barcelona -1.3 percent) and together with Dublin and Lisbon, where rents remained stable, Jones Lang LaSalle expect rents to soften further before reaching the bottom of the cycle in 2012.  In addition the performance differential between prime space and secondary space persists in many markets.

Chris Staveley, Director, EMEA Capital Markets at Jones Lang LaSalle, said: “Europe’s broad-based recovery is set to consolidate this year, with occupational volumes likely to show performance similar to last year’s. However, there are wide national variations across the region and the recent debt bailout negotiations in Portugal have been a reminder of the lingering sovereign debt risks. Fiscal tightening remains on the agenda of many countries, particularly Greece, Spain and Portugal. As concerns about economic recovery ease elsewhere, inflationary worries have moved to centre stage. Price rises have exceeded expectations across Europe over recent months, chiefly as a result of buoyant commodity prices and rising indirect taxes and the European Central Bank has recently increased interest rates with other Central Banks likely to follow over the course of the year.”

Around 2.6 million sq m of office space was leased in Q1 2011 across Europe, which was 17 per cent lower than take-up volumes in Q4 2010, (which is not unexpected as the first quarter is usually the weakest of the year.)  Overall Q1 leasing volumes were broadly similar to Q1 2010 (+4 percent) and only slightly below the five year quarterly average. Leasing volumes were much stronger in Central and Eastern Europe (CEE) driven by the Moscow market and a strong first quarter in Warsaw and Prague.  In Western Europe, occupier activity was strong in Stockholm, Milan and Dusseldorf with a good first quarter in these markets providing a boost to the overall Western European volumes.  London experienced lower volumes of take-up, however the level of enquires in the market grew. 

Bill Page, Head of EMEA Office Research at Jones Lang LaSalle, “Office demand is generally still being driven by lease events and consolidation, but there are signs of increased occupier optimism particularly in the Nordics, Germany and France. Looking ahead, we expect greater expansionary demand, but fiscal tightening continues to undermine confidence in countries such as Spain, Greece, Portugal and Ireland. In addition, unemployment in the European Union is only just starting to decline, although significant regional differences remain.”

Net absorption over Q1 2011 was positive, although around 40 per cent lower than the previous quarter and 8 per cent lower than Q1 2010, with overall results being impacted by the below average levels in the largest markets of Paris and London.  Annual absorption was positive, too, with around 3.8 million sq m - in line with the 10-year average.

Nine European office markets showed an increase in vacancy rates with the biggest rise recorded in Rotterdam (+170 bps) and a rise of 50 bps witnessed in Amsterdam in Budapest. However vacancy rates also fell in 15 markets with the biggest fall recorded in Dublin (-120 bps). The European vacancy rate was marginally up by 10 bps up at 10.3 percent over the quarter and vacancy in Western Europe and the CEE remained nearly unchanged on an aggregated level.  In many markets, the vacancy rate for good quality office space is low, and this continues to drive prime rental stabilisation or growth.  Overall, the supply of second hand space is high and available at a significant discount to prime.

Chris Staveley concluded; “In Quarter 1 only about 900,000 sq m of new space completed, roughly a third less than the five year average. For the full year, Jones Lang LaSalle expects in the region of 4 million sq m to be completed; 30 per cent less than the five year average, and the lowest for more than a decade. This will drive rental growth going forward and in certain markets combine with a more expansionary demand side.”
 
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To view a copy of the report click here