emea corporate occupier conditions 3q 2011
DESCRIPTION
Concerns over sovereign debt and doubts about the pace of global economic expansion have led Corporate occupiers to a cautious pause with capital investment, expansion plans and headcount under renewed scrutiny. Supply side dynamics continue to create real challenges. A lack of quality hampers those seeking to drive increased productivity through portfolio upgrades, while those needing to release surplus space are faced with markets heavy on low quality stock.TRANSCRIPT
EMEA Corporate Occupier Conditions - Q3 2011
Taking Stock
Concerns over sovereign debt and doubts about the pace of
global economic expansion have led corporate occupiers to a
cautious pause with capital investment, expansion plans and
headcount under renewed scrutiny.
Supply side dynamics continue to create real challenges.
A lack of quality hampers those seeking to drive increased
productivity through portfolio upgrades, while those needing to
release surplus space are faced with markets heavy on low
quality stock.
Landlords are adjusting behaviour to reflect these conditions.
At the quality end they are reigning in incentives, thus increasing
costs to occupier, but at the lower end of the market the reverse
is true and some are even removing poorer quality stock from the
market altogether.
2 On Point • EMEA Corporate Occupier Conditions – Q3 2011
Introduction
Welcome to the Q3 2011 edition of EMEA Corporate Occupier
Conditions.
A return to uncertainty or a temporary pause?
As Europe sets-off on its summer holidays, chilly economic
headwinds are generating more cautious behaviour from corporate
occupiers in the regions real estate markets. Demand and
confidence has been tempered by mounting concerns over the
handling of the sovereign debt crises in Europe and the US, and
increasing doubts about the pace of future global economic
expansion. Corporate occupiers are re-applying the brakes to
capital investment projects and hiring plans until there is greater
certainty over near-to-medium term economic conditions. Some are
going further, embarking on a new round of headcount reductions.
Most notable here have been recent announcements from Cisco,
Microsoft, Research in Motion, and HSBC. Furthermore the latter
has also announced its intention to close operations in 20 countries
around the world. No surprise therefore that the EU Confidence
Index has turned downwards after a sustained period of steady
uplifts.
The contrast with the corporate surveys of the early spring could not
be greater. These had pointed towards headcount increases,
market expansion and significant M&A activity as just some of the
drivers of increased real estate activity. Clearly these are on hold
and have led to more subdued activity levels in the markets. The
key question of course is the extent to which this is a temporary
pause or a more sustained rethink of growth strategies and
trajectories amid powerful economic uncertainty. Time will tell. But
what is clear is that the path to recovery has a few more twists and
turns to pass through. Corporate Real Estate (CRE) teams will
need to be mindful of this and primed to respond to sudden changes
of direction or approach.
Introspection prevails
Alongside rising uncertainty is a growing introspection from
corporate occupiers. This takes two clear forms:
• First, the internal corporate real estate (CRE) function within
many corporate occupiers continues to be rethought and
remodelled to drive stronger business engagement and deliver
greater strategic value to the decision making of the wider
business.
• Secondly, the CRE function is actively investigating the
opportunity to transform the existing workplace. This is driven
by the twin aims of supporting cost avoidance initiatives whilst
simultaneously raising the efficiency and productivity of the real
estate portfolio. The reduction in corporate capital expenditure
levels might serve to halt progress here over the short-term,
but longer-term workplace programmes will be a key feature of
CRE strategies.
Growing evidence of evolution
Finally, there has been strong evidence of the further evolution of
the CRE outsourcing market in EMEA over the last few months. A
growing number of EMEA domiciled corporations are coming to
market for (often global) real estate solutions to complex, mixed
office and industrial portfolios. These typically first generation
outsourcers are not merely seeking support for transactional activity,
but rather are engaging with service providers to drive
transformation in CRE team structure, strategy and delivery. They
are seeking support in addressing the challenges of
decentralisation; of poor real estate metrics and monitoring; and of
implementing coherent and strong portfolio strategies.
Transformation is also evident amongst the more established EMEA
market, with second and third generation outsourcers also renewing
or re-tendering in the market, a trend which has, in part, been
fuelled by churn amongst senior CRE leaders.
Vincent Lottefier
Chief Executive Officer
EMEA Corporate Solutions
On Point • EMEA Corporate Occupier Conditions – Q3 2011 3
EMEA Corporate Occupier Market Conditions: Summary
Exhibit 1: A weaker economic outlook characterised by strong variation
• Worsening uncertainty about the Eurozone debt crisis and the potential risks have softened the short term economic outlook.
• Wide national economic variations persist. Germany, the Nordics and increasingly France continue to perform well.
• In contrast the situation in countries such as Greece, Portugal, Ireland, Italy and Spain remains tense.
• The UK and France sit in the midst of these two groups, with growth of around 1-2% in 2011-12.
• The outlook for the European economies will be dominated by mounting concerns surrounding sovereign debt contagion from the Eurozone periphery, with new tensions being felt in Italy and Spain.
-1
0
1
2
3
4
5
6
Irela
nd
Spa
in
Hun
gary
Italy
UK
Fra
nce
Net
herla
nds
Bel
gium
Cze
chR
epub
lic
Fin
land
Ger
man
y
Pol
and
Rus
sia
Sw
eden
2010 2011 2012%
Exhibit 2: Corporate confidence takes a knock
60
80
100
120
1997 1999 2001 2003 2005 2007 2009 2011
-50
-25
0
25
50
Economic Sentiment (LHS) Retail Trade Confidence
Service Sector Confidence Industrial Confidence
• After a sustained period of gradual upward progression, The European Commission Confidence Indicator turned downwards in July as corporate confidence took a hit in light of the economic pressures outlined above. as continued its upward progression
• Recent weeks have also brought a number of large-scale global headcount reductions in both the technology and banking and finance sectors.
• From a real estate market perspective, most occupiers are taking stock of the situation with capital expenditure, expansion plans and real estate strategies being put on hold.
Exhibit 3: Overall activity levels stable but CEE improving more markedly than Western Europe
• Q2 2011 take-up was 2.7 million sq m – up 2% q-on-q and 4% on a year ago. It is also 8% higher than the 10 year average.
• Our expectations for 2011 are for an unspectacular year with volumes forecast to be around the same level as seen in 2010.
• Take-up volumes were slightly stronger in CEE (up 8% q-on-q and 24% y-on-y) with Western Europe being essentially unchanged.
• CEE volumes were driven by improving demand in Moscow, but significantly Warsaw and Prague have also shown encouraging activity so far over 2011.
• Activity in Germany is strong but modest in the core markets of London and Paris.
0
1,000
2,000
3,000
4,000
2Q01 2Q02 2Q03 2Q04 2Q05 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
CEE Western Europe 12 Month Rolling (RHA)
’000 m² ’000 m²’000 m² ’000 m²
Exhibit 4: A subdued outlook with growing introspection amongst occupiers
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11 12 13
Take-Up Central & Eastern Europe Take-Up Western Europe
10-year average (last 10 y)
’000 m²
• Our expectations for 2011 are for an unspectacular year with volumes forecast to be around the same level as seen in 2010.
• The future outlook for the occupier market is contingent upon how quickly the sovereign debt crisis can be resolved.
• Market churn, generated by responses to lease events, will underpin the bulk of occupier activity over the remainder of this year. It should be noted that such events do often enable alternative real estate and portfolio strategies to be realised however.
• Germany, the Nordics and the core markets of London and Paris are expected to witness expansionary demand although the scale of such demand which ultimately materialises in the markets may reduce given the issues outlined above.
4 On Point • EMEA Corporate Occupier Conditions – Q3 2011
Exhibit 5: Vacancy rates moved marginally downwards but remain in double-digits
• The European vacancy rate moved downwards, falling by a mere 10 bps to 10.2%. The rate has remained in double digits since Q4 2009.
• Prime space remains limited in many markets and has driven rental stabilisation or growth.
• Much available supply is second-hand space released by occupiers who have been upgrading or right-sizing their portfolios.
• Occupiers seeking to dispose of surplus space are therefore facing challenging market conditions.
0 – 5%
5 – 10%
10 – 15%
15 – 25%
Vacancy Rates Q1 2011
0 – 5%
5 – 10%
10 – 15%
15 – 25%
0 – 5%
5 – 10%
10 – 15%
15 – 25%
Vacancy Rates Q1 2011
6.0%
12.1% 10.3%13.5%
7.0%
9.3%
6.0%
11.2%
17.1%
8.5%
11.4%
10.3%
16.8%
20.6%
11.9%
6.6%8.8%
14.3%
10.5%
15.1%8.4%
5%
10%
3-4%
44%
14%
JohannesburgJohannesburg
6-7%
CasablancaCasablanca
10 %
17.2%
12.5%10.9%
12.6%
7.9%
20.6%
6.8%
10.5%
10.2%
9.3%
23%
10-12%
9%
Exhibit 6: The development pipeline has been moderated across most of the region
0
1
2
3
4
5
6
7
8
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
0
2
4
6
8
10
12
Completions (millions sq m) Vacancy rate (%)
• New completions have decreased further q-on-q with only c670,000 sq m of office space completed across the region – 50% below the long-term average.
• Completions in the Moscow market dropped below 100,000 sq m; in London only 8,000 sq m of new space was added and in nearly all European markets completion volumes are well below the long-term average.
• For the full year, we expect about 3.9 million sq m of office space to complete (including pre-lets) – the lowest volume in more than a decade.
Exhibit 7: Western European Red, Amber, Green Matrix (RAG)
• Our RAG charts provide a sense of 5 year forward looking market conditions.
• Based on a combination of prime econometric rental forecasts and local market sentiment we identify whether markets are landlord favourable (red), tenant favourable (green) or balanced (amber).
• For mature Western European markets future conditions are mixed but, owing to shortages of quality supply, conditions have hardened markedly towards landlords in most markets.
• Core and niche financial centres such as London, Paris and Zurich, have turned strongly in favour of the landlord.
Zurich
Paris
Milan
London City
Frankfurt
Amsterdam
201320122011
Zurich
Paris
Milan
London City
Frankfurt
Amsterdam
201320122011
Tenant Favourable MarketBalanced MarketLandlord Favourable Market
Exhibit 9: CEE and MEA sub-region Red, Amber, Green Matrix (RAG)
Istanbul
Dubai
Cairo
Warsaw
Moscow
Bucharest
201320122011
Istanbul
Dubai
Cairo
Warsaw
Moscow
Bucharest
201320122011
Tenant Favourable MarketBalanced MarketLandlord Favourable Market
• In the CEE sub-region, prime rental increases have been marked q-on-q and this has led to markets such as Moscow and Warsaw turning further in favour of the landlord.
• This is very much a function of supply. Despite having reasonably large development pipelines, developers do not tend to build large volumes of space at international quality putting such space at a premium, particularly given improving demand.
• Markets such as Dubai and Abu Dhabi are over-supplied and as such underlying conditions are firmly in favour of the occupier.
• In North Africa, recent political turmoil has led to a softening of market conditions although fundamentals suggest that strong rental growth will return as soon as a semblance of operating normality returns.
On Point • EMEA Corporate Occupier Conditions – Q3 2011 5
Exhibit 9: EMEA Office Occupier Clock
Landlord’s Market Tenant’s Market
Rental Growth Slowing
Rents Falling
Rents Rising Decline Slowing
• 38 of the 66 markets plotted on the latest EMEA Office Property Clock occupy positions at or beyond 6 o’clock, reflecting the likelihood of growth in prime rents before the end of the year.
• Cairo continues to occupy the 3 o’clock position but expectations are that when demand returns to the market it will move quickly around the clock and back firmly into rental growth as supply is now even more limited post revolution.
• It should be noted that a number of new markets are contained in both the above clock and the wider report. We are pleased to now report on the Bristol, Cardiff, Belgrade, Bratislava and Sofia markets.
Western Europe
Central and Eastern Europe
Middle East & Africa
Western Europe
Central and Eastern Europe
Middle East & Africa
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Athens, LisbonBarcelona, Leeds, Madrid, Belgrade, DohaBrussels, Dublin, Edinburgh, Luxembourg,Jeddah, RiyadhAmsterdam, Eindhoven, Rotterdam, The Hague,Utrecht, Bucharest, Budapest, Sofia, Zagreb,
Rome, Tri-CityBirmingham, Bristol, Cardiff, Frankfurt, Glasgow,Milan, Bratislava, Kiev, Krakow, Prague,Johannesburg, Tunis
Istanbul, St. Petersburg, Malmo,Manchester, Western Corridor
Copenhagen
Warsaw, Berlin, Cologne, Gothenburg,Hamburg, Helsinki, Paris
Munich, Stockholm
Düsseldorf, Geneva, Lyon, Stuttgart
Moscow, Zurich
London West End
London City, Oslo
Casablanca, Tel Aviv
Algiers
Dubai
Abu Dhabi
Cairo
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Athens, LisbonAthens, LisbonBarcelona, Leeds, Madrid, Belgrade, DohaBarcelona, Leeds, Madrid, Belgrade, DohaBrussels, Dublin, Edinburgh, Luxembourg,Jeddah, RiyadhBrussels, Dublin, Edinburgh, Luxembourg,Jeddah, RiyadhAmsterdam, Eindhoven, Rotterdam, The Hague,Utrecht, Bucharest, Budapest, Sofia, Zagreb,Amsterdam, Eindhoven, Rotterdam, The Hague,Utrecht, Bucharest, Budapest, Sofia, Zagreb,
Rome, Tri-CityRome, Tri-CityBirmingham, Bristol, Cardiff, Frankfurt, Glasgow,Milan, Bratislava, Kiev, Krakow, Prague,Johannesburg, Tunis
Birmingham, Bristol, Cardiff, Frankfurt, Glasgow,Milan, Bratislava, Kiev, Krakow, Prague,Johannesburg, Tunis
Istanbul, St. Petersburg, Malmo,Manchester, Western Corridor
Istanbul, St. Petersburg, Malmo,Manchester, Western Corridor
CopenhagenCopenhagen
Warsaw, Berlin, Cologne, Gothenburg,Hamburg, Helsinki, Paris
Warsaw, Berlin, Cologne, Gothenburg,Hamburg, Helsinki, Paris
Munich, StockholmMunich, Stockholm
Düsseldorf, Geneva, Lyon, StuttgartDüsseldorf, Geneva, Lyon, Stuttgart
Moscow, ZurichMoscow, Zurich
London West EndLondon West End
London City, OsloLondon City, Oslo
Casablanca, Tel AvivCasablanca, Tel Aviv
AlgiersAlgiers
DubaiDubai
Abu DhabiAbu Dhabi
CairoCairo
6 On Point • EMEA Corporate Occupier Conditions – Q3 2011
WESTERN EUROPE: Corporate Occupier Conditions
Economic growth has been very mixed in Europe so far this year,
with stronger than expected activity in the Eurozone’s core
economies in Q1, seemingly stalling in Q2. There remains
significant divergence between the dynamic export-driven
economies of Germany and the Nordics, where 2011 growth is
expected to be in excess of 3.0%, and the Eurozone’s southern
periphery (Greece, Spain, Portugal and Italy) where combined
growth is likely to be less than 0.5% per annum in 2011-12. The
UK and France sit in the midst of these two groups, with growth
of around 1-2% in 2011-12. The outlook for the European
economies will be dominated by mounting concerns surrounding
sovereign debt contagion from the Eurozone periphery, with new
tensions now being felt in Italy and Spain.
Demand for office space across Europe was unspectacular in Q2
with circa 2.7 million sq m of take-up recorded. This was a
volume 2% higher than Q1 and 4% higher than Q2 2010. This
level of activity was however high relative to the long-term
average (up 8%). Expectations for annual take-up at the year
end are moderate with total volumes being similar to those
witnessed over 2010. In line with sound economic conditions
and performance, the German office markets (with the exception
of Düsseldorf which had a strong Q1) exhibited further increases
in demand and take-up. Volumes in London and Paris remained
modest, with volumes in London City so far this year significantly
down on 2010 performance.
Exhibit 10: Western Europe Office Occupier Clock
Vacancy rates moved only marginally q-on-q. European vacancy
rates continued their downward trend but fell by a mere 10bps to
10.2%. Rates have now been at double-digit levels since Q4
2009. It should be noted that prime space in many markets,
notably London and Paris, still remains limited and this has
driven rental stabilisation or growth as well as presenting a real
challenge to corporate occupiers. Much of the supply in the
markets is second-hand space released by those occupiers who
have upgraded or right-sized over recent times. This second
hand space continues to trade at a significant discount to prime.
Prime rents across Europe continued their modest growth. The
European Office Index grew by 2.1% q-on-q but was highly
influenced by double digit rental growth in select CEE markets.
In Western Europe, rental costs rose sharpest in Lyon (+8%) but
increases of more than 2.5% q-on-q were seen in Munich,
Stockholm and London’s West End. The difficult debt situation of
governments and households – and significant austerity
measures – continues to drag rents in markets such as Madrird,
Barcelona and Dublin, where rents declined further. The
widening differential in rental performance across Western
Europe is clearly evident in the latest Jones Lang LaSalle Office
Occupier Clock below.
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Athens, LisbonBarcelona, Leeds, Madrid
Brussels, Dublin, Edinburgh, LuxembourgAmsterdam, Eindhoven, Rotterdam,The Hague, Utrecht
RomeBirmingham, Bristol, Cardiff, Frankfurt,Glasgow, Milan
Malmo, Manchester, Western Corridor
Copenhagen
Berlin, Cologne, Gothenburg,Hamburg, Helsinki, Paris
Munich, Stockholm
Düsseldorf, Geneva, Lyon, Stuttgart
Zurich
London West End
London City, Oslo
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Athens, LisbonAthens, LisbonBarcelona, Leeds, MadridBarcelona, Leeds, Madrid
Brussels, Dublin, Edinburgh, LuxembourgBrussels, Dublin, Edinburgh, LuxembourgAmsterdam, Eindhoven, Rotterdam,The Hague, UtrechtAmsterdam, Eindhoven, Rotterdam,The Hague, Utrecht
RomeRomeBirmingham, Bristol, Cardiff, Frankfurt,Glasgow, MilanBirmingham, Bristol, Cardiff, Frankfurt,Glasgow, Milan
Malmo, Manchester, Western CorridorMalmo, Manchester, Western Corridor
CopenhagenCopenhagen
Berlin, Cologne, Gothenburg,Hamburg, Helsinki, Paris
Berlin, Cologne, Gothenburg,Hamburg, Helsinki, Paris
Munich, StockholmMunich, Stockholm
Düsseldorf, Geneva, Lyon, StuttgartDüsseldorf, Geneva, Lyon, Stuttgart
ZurichZurich
London West EndLondon West End
London City, OsloLondon City, Oslo
On Point • EMEA Corporate Occupier Conditions – Q3 2011 7
Amsterdam
Cost: € 335 / sq m Competition:44,400 sq m Choice: 17.3%
The amount of competition in the market increased q-on-q by 81%,
but this was about average and as a result there was little meaningful
decrease in choice. This environment of subdued occupier demand
and stable supply is expected to persist with moves driven by cost
containment rather than any expansion. The only movement in
supply has been witnessed in the very best space where there has
been a slight reduction in choice. The market is still characterised by
a large amount of oversupply, particularly in more peripheral areas
where choice is inflated by less suitable accommodation and a lack
of alternative uses. In the medium term this could reduce as the
municipality is actively encouraging hotel conversion outside of the
City core. There has been no movement in prime rents or secondary
rents, although incentives could increase later this year as the
market encourages absorption.
Antwerp
Cost: € 145 / sq m Competition: 16,200 sq m Choice: 11.8%
Occupier activity remains subdued with leasing volumes for H1 2011
down 24%, when compared to the equivalent period of 2010. There
are, however, some large scale requirements pending that we
expect to transact in the second half of the year. Despite a relatively
low level of activity, the vacancy rate actually fell to 11.8% from
12.9% in the previous quarter. While some choice was absorbed,
we have also seen some reallocation of vacant space to other uses
as well as the temporary removal of supply which is now undergoing
refurbishment. The prime rent in the CBD increased by 6.6% to
reach €145 per sq m this quarter. Rents remained stable in all other
districts, reaching €136 per sq m in the Ring district. 2011 as a
whole should see some limited rental growth, driven primarily by
supply shortages for certain types of space, especially in the South
of Antwerp and particularly for units over 2,000 sq m.
Athens
Cost: € 270 / sq m Competition: n/a Choice: 15.1%
The Greek economy is in the middle of a deep recession. Business
confidence is low and although the bailout approved in July 2011 of
€109-billion will give Greece more breathing room, it does not
eliminate the probability of going through deeper debt restructuring in
the future. GDP contracted by 4.4% in 2010 according to Global
Insight and the latest forecasts suggest only marginal improvements,
ranging between -3.5% and -3.9% (IMF) this year. Unemployment
has also surged to 15.8% (April 2011) compared to 11.9% (April
2010).These trends continue to impact the office market with
vacancy rates reaching 15.1%, up from 12.5% at the equivalent
period last year. Occupational costs continued to fall and, compared
to pre crisis levels, are approximately 41% lower with the best space
commanding €270 per sq m per annum. Occupier activity has
increased in the north of Athens, with corporate occupiers relocating
on the basis of cost reduction.
Barcelona
Cost: € 225 / sq m Competition: 74,560 sq m Choice:13.5%
Take up volumes in Q2 reached 74,560 sq m, up 14% q-on-q and
43% up from the equivalent quarter last year. Improvements in
demand were driven by attractive incentives as owners are faced
with rising vacancy rates and therefore opting to implement more
attractive rental policies. On the supply side, vacancy rates have
remained fairly stable over the year and were up only 10 bps q-on-q.
No speculative development is due to come onto the market over
H2 2011. Indeed, over the next two years projects will be limited
with the majority of developments are due to complete in 2014. In
line with the trend over the last three years, rental levels declined
over Q2 by an average of 1.4%. Prime rents are expected to
continue to decline very slightly before stabilising at the end of the
year.
8 On Point • EMEA Corporate Occupier Conditions – Q3 2011
Berlin
Cost: € 252 / sq m Competition:149,700 sq m Choice: 8.8%
The occupational market has become more competitive with deal
volumes at a 10-year high at 282,000 sq m and 39% above total
take-up in 2010. Activity was driven by the East sub-market where
Mercedes Benz AG took a 26,000 sq m unit. This positive tone is
expected to continue into the second half of the year with more
expansionary activity in evidence. As a consequence of increased
competition, choice reduced with a lack of new completions further
exacerbating this pressure. The cost of space increased q-on-q with
further rental increases expected this year, driven by the strength of
competition, rather than just a lack of choice. This change in the
market dynamic is also being felt in incentives, with landlords less
likely to grant deals at the levels seen over recent quarters. The
majority of deals in the market were completed at rents of between
€10 and €15 per sq m per calendar month. Secondary rents
remained unchanged q-on-q.
Birmingham
Cost: € 340 / sq m Competition: 14,700 sq m Choice:20.0%
Choice in the market increased over Q2, with vacancy rates
reaching record highs of 20%. This was driven solely by the release
of Grade B space, with some occupiers releasing space back onto
the market and taking the opportunity to upgrade. Occupiers
seeking Grade A space face more limited choice, with Grade A
vacancy rates falling to just 3.8% due to little change in the
development pipeline. As no speculative completions are scheduled
for this year, we expect even modest levels of take-up to begin to
absorb supply. Occupier demand increased significantly over Q2,
up 55% y-on-y. Activity was boosted by a number of large deals
including the 3,900 sq m deal to the Ministry of Justice and the
2,700 sq m deal to Deutsche Bank. Going forward we expect the
public sector, which was still active over Q2, to be a net disposer of
space nationally. Cost remained stable with prime rents at €340 per
sq m at the end of Q2. Incentives remain generous at around 36
months based on a 10 year term.
Bristol
Cost: €328 / sq m Competition: 7,600 sq m Choice: 12.3%
Occupier demand remains relatively subdued with leasing volumes
down 49% compared to the previous quarter. Looking ahead, we
expect annual take-up in Bristol city centre to be below the five-year
average of 52,000 sq m in 2011. The volume of Grade A supply in
Bristol city centre continues to be eroded but is offset by a steady
stream of second hand space which remains unattractive to
occupiers. We are unlikely to see any new speculative starts in the
short term as developers continue to exercise caution, which has
been further fuelled by AXA’s decision to shelve its 7,500 sq m
Bristol requirement. Prime rents remained stable at €328 per sq m.
Incentives remain generous in the city centre at up to 18 months on
a five year term and up to 36 months on 10 years, although this is
deal specific. With Grade A supply continuing to fall, we expect
incentives to move in over the next 12 months.
Brussels
Cost: € 310 / sq m Competition:63,000 sq m Choice: 11.2%
Occupier activity remains relatively subdued with just 63,000 sq m of
take-up during Q2. Completions totalled 25,900 sq m in Q2 of which
15,700 sq m was built speculatively, the only speculative delivery of
H1. The limited level of speculative completions combined with the
low level of take-up activity this quarter kept the overall vacancy rate
stable at 11.2%. Looking ahead, development activity remains
limited with an estimated 136,000 sq m due to be completed over
the whole 2011, of which only 34,700 sq m is speculative. 2012 will
see a further 110,000 sq m complete, of which around 76,000 sq m
is speculative. This is very low when compared to the 10 year
average level of 365,000 sq m. Over the medium term, vacancy
rates are forecast to gradually decline as demand begins to
improve. Rental conditions remained stable at €310 sq m in the
Leopold district while they range from €165 sq m in the Periphery to
€230 sq m in the city. The weighted average rent for the total
Brussels market remained flat at around €173 per sq m.
On Point • EMEA Corporate Occupier Conditions – Q3 2011 9
Cardiff
Cost: € 250 / sq m Competition: 25,400 sq m Choice: 12.3%
Q2 2011 witnessed continued caution in the Cardiff occupier
market. That said city centre take-up reached over 25,000 sq m in
Q2, up considerably compared with the previous quarter. Total
take-up reached 35,700 sq m, which is only 10% short of last years
total and likely to result in 2011 take-up returning to long term
average levels. This encouraging level of take-up was boosted by
the 20,000 sq m city centre pre-let to Admiral Insurance and the
4,600 sq m deal to the Listening Company, which together
accounted for around 65% of take-up in H1 2011. Activity was
driven primarily by the Business Services and Financial Services
sectors, with a notable lack of public sector activity. Supply in the
Cardiff office market was almost unchanged over the quarter. There
remains a shortage of Grade A office space, which could lead to
increased pre-letting activity going forwards. No speculative
completions are scheduled in 2011 which should result in a
reduction of Grade A supply in the short term. Prime city centre
headline rents have remained unchanged over the past year at €250
per sq m. Out-of-town rents were also unchanged at €183 per sq m.
Cologne
Cost: € 258 / sq m Competition: 89,300 sq m Choice:8.7%
Occupier activity over H1 was 175,000 sq m – a level double that of
the same period in 2010. Two large deals drove these volumes -
RheinEnergie AG began construction on a 45,000 sq m owner-
occupier project and LANXESS Deutschland GmbH signed a deal
for 38,000 sq m in maxCologne, which is undergoing a complete
refurbishment. The fact that neither of these two large deals was for
current office space further illustrates the limited choice of high-
quality, contiguous space. Projects currently under construction will
bring some relief to this situation, with almost 50,000 sq m of space
still available. This volume is far from sufficient to meet the strong
demand for high-quality space. Some searches for office space
have even been postponed because of this constrained choice.
Despite this dynamic, overall vacancy remains high, inflated by out-
dated properties, while top quality space at 1/5th of total vacant
stock is extremely low. The prime rent remained stable over H1, but
in several submarkets prices increased.
Copenhagen
Cost: € 241 / sq m Competition: n/a Choice:7.9%
The occupational market continued to improve significantly with
further signs of active leasing over Q2. The energy company DONG
occupied over 20,000 sq m of space in and out of the City area,
while engineering and consultancy firms occupied a number of the
mid-sized buildings. Occupier preference for Grade A space drove
the overall vacancy rate down by 120 bps to 7.9% q-on-q – the
lowest rate since Q3 2009. Speculative development still remains
absent and there are no new schemes under construction or
anticipated with banks not minded to lend. A release of space from
the TMT sector is anticipated due to Nokia’s cost saving measures
in their R&D departments, with approximately 30,000 sq m of space
to be made available over the next couple of years. Prime rents
have risen by 2.9% to DKK 1,800 and will continue upwards as the
erosion of Grade A space is maintained over the short term.
Secondary rents were up 2.3% q-on-q, standing at DKK 1,125 – a
reflection of rising demand in secondary locations.
Dublin
Cost: € 355 / sq m Competition: 35,800 sq m Choice:20.6%
Overall supply fell for the third consecutive quarter with vacancy
rates of 20.6% at the end of Q2, compared with 23% at the start of
the year. Choice will continue to reduce as the development
pipeline remains sparse with nothing scheduled to complete
speculatively until 2013. Large occupiers seeking units in excess of
10,000 sq m will be faced with a steadily diminishing range of
choice, with just a handful of buildings within the City centre capable
of satisfying such requirements. Building on a strong Q1, take-up
increased further over Q2 and was up 25% compared to the same
period last year. Occupiers continued to focus on suburban and city-
edge locations which accounted for around 65% of take-up. The
majority of activity was driven by companies expanding or by new
entries to the market which accounted for 35% and 29% of total
take-up respectively. With c 26,000 sq m of deals expected over Q3,
total take-up for 2011 is anticipated to reach around 140,000 sq m –
14% up on 2010 but still below the 5 year average.
10 On Point • EMEA Corporate Occupier Conditions – Q3 2011
Dusseldorf
Cost: € 282 / sq m Competition: 72,000 sq m Choice:12.0%
Occupier activity was modest over H1 at 184,000 sq m. This was
25% down on last year but in line with long-term averages. There
was more competition in larger deals (over 1,000 sq m) with the
VivaKi group carrying out the biggest letting in the “Le Quartier
Central” project at c.11,800 sq m. Düsseldorf city accounted for
around 85% of total take-up. We expect more competition this year
driven by an expanding economy. Choice reduced due to moderate
deliveries of new stock and the reasonable rate of deals but remains
high overall. Going forward the completion volume in 2011 will be at
its lowest level for the past five years. Prime rents have increased
twice within the last 12 months. We expect a further increase to
€24.00 per sq m per calendar month by year end. The weighted
average rent also increased y-on-y and is now €13.54 per sq m per
calendar month. The majority of deals are between €10 and 15 per
sq m per calendar month.
Edinburgh
Cost: € 328 / sq m Competition: 14,700 sq m Choice: 7.0%
Supply fell further over Q2 as space was absorbed through take-up
activity. Occupiers, such as Franklin Templeton, have also begun to
re-occupy their surplus space. Overall vacancy rates fell to 7.0%,
with Grade A supply remaining stable at 3.5%. Looking at the
development pipeline there were no new speculative starts over Q2,
but there does remain around 19,000 sq m of space under
construction speculatively, although this is not scheduled to
complete until 2013. We therefore anticipate choice to fall further
over the coming months, as existing space is gradually absorbed.
Occupier activity increased 27% y-on-y, boosted by the 6,000 sq m
deal to Amazon at Waverly Gate. This took half year volumes to
31,000 sq m which is effectively in line with the level of activity seen
over H1 2010. We have also witnessed some expansionary activity
particularly within the financial services sector. While we expect to
see increased activity over H2 2010, growth will remain limited with
deals driven largely by lease events. Prime rents remained stable
q-on-q at €328 per sq m, with incentives still generous at around 32-
36 months achievable on a 10 year term.
Eindhoven
Cost: € 185 / sq m Competition: 23,600 sq m Choice:12.0%
There was a significant reduction in choice over the second quarter
with vacancy rates dropping from 15% to 12%. This was driven
partly by occupier activity with Bosch taking a significant unit from a
former Phillips location comprising around 15,000 sq m. The other
driver for this reduction was the withdrawal of around 25,000 sq m
from the market as the owners preferred to wait until the market
strengthened in their favour before pursuing a disposal. This was in
the Strijp district. Occupier confidence remained unchanged,
however, and the expectation that this will be a subdued year in
terms of competition continues despite half year volumes being 80%
up on H1 2010 and encouraging signs from knowledge based
sectors elsewhere in Europe. Prime rental conditions remained
stable but a recent deal to KPMG has tested valuations although
this is not seen as an upward trend.
Frankfurt
Cost: € 396 / sq m Competition:140,400 sq m Choice:14.3%
The market experienced a strong increase in competition over Q2
and more activity by volume has been witnessed this year despite
last year being dominated by the huge ECB deal. At 21%, deals in
the 2,500 sq m - 5,000 sq m category were particularly active but
there were also two big deals above 20,000 sq m – the 24,000 sq m
letting by BaFin in the Mertonviertel and the 20,000 sq m owner-
occupier deal to begin construction of Fraport AG at the airport.
Additions of new supply were low while occupier demand was
strong. This led to a decrease in choice – by around 100,000 sq m
over the quarter - although overall supply remains high. Prime rents
remained stable q-on-q although upward pressure is growing. Rents
in secondary areas were stable at €210 per sq m and incentives
remained unchanged.
On Point • EMEA Corporate Occupier Conditions – Q3 2011 11
Geneva
Cost: € 786 / sq m Competition: n/a Choice: 0.9%
Demand for prime office space remains high in the Geneva office
market particularly from financial institutions, wealth managers and
associated service providers as well as international organisations
such as the Red Cross and the United Nations. With supply at very
low levels, and often in off-CBD locations, prime rents continue to
increase. Office vacancy rates in the city centre are at levels of sub
1% and limited plots for construction plus a tedious planning
process will limit future supply in the CBD. New space is
predominantly constructed south of the CBD and around the airport.
The most notable project is the “SOVALP” – a large scale
development that will provide some 100,000 sq m once completed
in 2014. Competition for space remains high and finding suitable
space solutions, especially for larger unit sizes, can be challenging
for occupiers. Given positive economic prospects for the region and
a lack of new supply, rents are expected to rise further. Prime rents
currently stand at CHF 960 / sq m per annum and office space
overlooking Lake Geneva is usually trading at a premium to this.
Office space is more widely available and trading at a discount (e.g.
CHF600 in the airport area) but is often of lower quality and lacks
vital access to amenities.
Glasgow
Cost: € 328 / sq m Competition: 6,300 sq m Choice: 10.5%
Occupier activity fell slightly over Q2 but there remains a healthy
level of activity in the market. Choice was relatively stable over Q2,
with overall vacancy rates remaining at 10.5%. Grade A supply
remains far more constrained as reflected by a corresponding
vacancy rate of just 3.3%. The development pipeline market
continues to be constrained, primarily due to the lack of funding
opportunities but a number of developers have commenced pre-
letting campaigns. With nothing under construction in the City
centre and no speculative starts anticipated in the coming year, we
expect further tightening of Grade A supply. There remains a
significant amount of Grade B supply in the City centre which is
expected to keep rates inflated over the coming year. Prime rents
continued their upward trend in Q2, up by 1.8% to £296 per sq m.
While rent free periods remain generous at between 24-30 months,
we have seen the level of incentives tighten for the best space. We
expect incentives to harden further and prime rents to rise slowly.
Gothenburg
Cost: € 246 / sq m Competition: 16,870 sq m Choice: 8.7%
The occupational market showed less intensity in Q2 2011 with
volumes at around 17,000 sq m, half of the previous quarter’s
exceptionally strong level. Business services dominated the sectors
with over 30% of total take-up while the public sector who
dominated last quarter again saw strong demand of around 25% of
total demand. Current supply remained stable with a total vacancy
rate of 8.7% in existing stock. No new speculative office space has
been added to the market during the quarter. In 2010, development
projects completed over 50,000 square meters of new office space
in Gothenburg, which is the highest level since early 2000. For
2011, we expect to see around 25,000 square meters of new space
completed by the end of the year with an upturn in supply due to
pick up again in 2012. Prime rents are expected to increase in the
central submarkets CDB and other Inner city. A continued increase
is predicted for the remainder of the year, albeit at a slow pace. In
more fringe submarkets and secondary premises the rent levels are
stable.
Hamburg
Cost: € 276 / sq m Competition: 109,100 sq m Choice: 9.3%
Companies were more active in Hamburg with more competition
emerging from expansionary demand. Corporate occupiers are also
reaching decisions more quickly as the country’s economic
confidence grows. Over the second quarter most activity was seen
in small deals and across a variety of sectors – the only notable
absentee being the Public Sector. In terms of choice, two
developments were completed in Q2: Ericus Kontor (18,000 sq m) in
HafenCity and Passat Haus (6,100 sq m) in the City Centre. Total
completion volumes reached 82,000 sq m in H1, with 150,000 sq m
expected in H2 including the new building for Spiegel Verlag in
HafenCity. Choice fell slightly in the second quarter but options will
become more plentiful later this year. The strengthening
occupational market drove an increase in cost - both prime and
average rents increased and incentives moved in favour of the
landlord by one month.
12 On Point • EMEA Corporate Occupier Conditions – Q3 2011
Helsinki
Cost: €294 / sq m Competition: n/a Choice: 10.3%
Occupier demand showed signs of recovery over H1 2011. The
most active demand remains focused on the CBD where offices of
200-300 sq m are preferred. Other established office areas
supplying Grade A offices also face relatively good demand,
particularly new developments which are still attractive in the eyes of
the occupiers. Offices with B or C ratings outside the CBD continue
to struggle despite lower asking prices and generous incentives.
Consequently, owners are increasingly moving towards re-
development options. Occupiers’ awareness of sustainability issues
is also becoming of clear importance when selecting premises.
Vacancy still remains relatively high although rates in Helsinki
dropped 40bps q-on-q to 10.3%. The development pipeline of new
office space has continued to grow with over 30,000 sq m of new let
table space entering the market over H1. Prime rents in the CBD
rose 2% q-on-q. Tenant incentives in the CBD are almost non-
existent and outside the CBD are typically from two to three months
for Grade A premises in comparison to six months previously.
Leeds
Cost: € 310 / sq m Competition: 14,700 sq m Choice:10.7%
Q2 2011 brought a significant improvement in occupier activity,
albeit from a low base. Half-year take-up was 19,500 sq m which is
15% below the five year average. Whilst occupiers remain cautious
there are a number of new requirements for office space within
Leeds city centre seeking 1,000 – 2,000 sq m. Supply continued to
decline over Q2, with vacancy rates falling to 10.7% overall and
5.6% for Grade A space. The development pipeline remains
constrained, with just 3,800 sq m of new office space currently
under construction speculatively. If several existing requirements
translate into deals before the end of the year then any new sizeable
requirements will be faced with a steadily diminishing range of
choice. Prime rents were stable q-on-q at €310 per sq m.
Incentives remain stable but generous, with around 30 months rent
free achievable on a 10 year term. Despite impending supply
shortages, we could see slight additional softening rents over 2011 if
replacement demand does not materialise.
Lisbon
Cost: € 228 / sq m Competition: 16,200 sq m Choice:12.1%
Occupier activity improved slightly over Q2 with volumes up 22% q-
on-q but down when compared to the equivalent period in 2010.
The majority of activity was concentrated in zone 6. We expect
occupier activity for the next 12 months to remain broadly stable,
with recovery remaining relatively slow. Prime rents remained
stable at €228 per sq m, and have been so since the end of 2009.
Incentives for the city overall were also stable with around three to
six months rent free achievable on a three to five year lease. Rental
levels in secondary locations were also relatively stable, although
incentives here have shown signs of increasing. The second
quarter of the year saw just 12,460 sq m of new completions enter
the market. Despite this relatively low level of completions, the
overall vacancy rate increased slightly from 12.0% to 12.1%. The
majority of supply is concentrated in Zone 6, which houses around
38% of currently available supply. Looking ahead the development
pipeline remains relatively constrained with just 17,100 sq m due to
complete speculatively over the remainder of the year.
London City
Cost: € 646 / sq m Competition: 63,700 sq m Choice: 6.9%
Q2 was relatively quiet with 63,700 sq m transacted across 59
deals, a 7% decrease on last quarter and 46% behind the quarterly
average. However a significant amount of space remained under
offer which should transact during H2. Requirement volumes
increased 24% as a number of media occupiers launched tentative
requirements seeking in excess of 10,000 sq m. Occupier demand
is now 17% ahead of the 10 year average. Total supply decreased
6% to reflect a vacancy rate of 6.9% overall and 3.9% for Grade A
supply. Speculative construction increased 55% to end the quarter
at 280,000 sq m driven by the commencement of 60 London, EC1
and The Place, SE1. We have seen increases in refurbishments
over the quarter with three notable schemes totalling 29,000 sq m
commencing. Although there has been an increase in development
activity, we don’t expect a meaningful quantum coming to the
market over the next two to three years. Prime rents remained
stable for the third consecutive quarter with rent-free periods,
assuming a 10-year term at 22 months. With supply constrained and
demand increasing, we anticipate further rental growth this year.
On Point • EMEA Corporate Occupier Conditions – Q3 2011 13
London West End
Cost: € 1132 sq m Competition: 77,500 sq m Choice: 4.6%
Just over 77,000 sq m was let across 53 deals in Q2 - a 29%
increase q-on-q. This was driven by the likes of Google completing
their 14,600 sq m acquisition at Central Saint Giles and Double
Negative taking a pre-let on 8,000 sq m at 160 Great Portland
Street. Over the year to date take-up volumes were down 24% on
the equivalent period last year. Total supply fell 12% to 381,000 sq
m while Grade A supply fell 10% to 186,000 sq m. Overall vacancy
rates fell from 5.2% to 4.6% and Grade A from 2.6% to 2.3%.
Vacancy rates are now at their lowest levels since 2008. After a
31% increase last quarter, speculative construction decreased 5%
due to the completion of 11 Baker Street and the pre-let of 160
Great Portland Street. Only one scheme commenced construction
in Q2 (25 Soho Square,W1) compared with four last quarter. Prime
rents increased 2.7% while rent-free periods remained at 16
months, assuming a 10-year lease. We expect rents to increase
further over the remainder of the year given the low availability of
quality supply.
Luxembourg
Cost: € 456 / sq m Competition: 47,600 sq m Choice: 6.6%
Occupier activity for H1 2011 reached 73,000 sq m – a 53%
increase on the same period in 2010. This reflects a return to pre-
boom levels. We have seen increased activity from the Banking &
Finance sector which was responsible for the largest transaction of
the quarter with around 8,700 sq m taken by Pictet Bank. Around
21,500 sq m of office space completed over Q2, of which only 9,700
sq m was delivered speculatively. The low level of speculative
completions, combined with the increase in take-up activity resulted
in a downward shift in the overall vacancy rate to 6.6%. The lack of
new supply entering the market will drive vacancy rates down further
over the remainder of the year. Rents remained stable across all
submarkets q-on-q, peaking at €456 per sq m in the CBD. We
expect the prime rent to remain relatively flat over 2011, however
incentives have begun to tighten. Given the declining levels of
supply we expect to see further upward pressure on prime rents to
commence from the end of 2012.
Lyon
Cost: € 270 / sq m Competition: 71,310 sq m Choice: 6.8%
Occupier activity over H1 2011 increased 4% compared with 2010,
with Q2 being far more active that Q1. Deals have been focussed
on Inner Lyon which has attracted 75% of activity, driven by the
Part-Dieu sector (+53%) and Tonkin Saint Clair sector (+250%).
There has also been more demand for medium sized office units
(500-2,000 sq m). Choice was broadly stable at 6.8%, however the
distribution of supply is very unequal with supply tight in the 6th
district, Part-Dieu, Presqu’Ile – Confluence or Vaise and Plateau
Nord. Other districts offer a significant proportion of quality premises
such as the 7th and 8th districts. Going forward choice will remain
challenging with 60% of space under construction already prelet.
This relative scarcity of new build has led to increased competition
and increased costs - in Part-Dieu rents have risen to €270 per sq m
and in Presqu’Ile Confluence to €260 per sq m. Second-hand rental
values are mixed. Incentives have remained at 6-9 months
assuming a 6-9 year lease.
Madrid
Cost: € 318 / sq m Competition: 87,840 sq m Choice:10.3%
Leasing volumes improved over Q2 and although large scale
demand remains scarce, it too has improved q-on-q. Almost 40% of
the existing demand is focused on the CBD with similar levels in the
periphery and only 4% in secondary areas. Corporate occupiers are
still putting off decisions to obtain advantageous rental conditions or
renegotiations in their current locations. Office vacancy increased
slightly overall at 10.3%. Due to the widespread lack of transactions,
choice increased particularly in the peripheral areas. However in the
CBD and satellite areas supply remained relatively stable and even
dropped slightly, with vacancy standing at 8% in the central area.
Total vacancy for offices and high-tech buildings has also dropped
somewhat due to the temporary withdrawal of secondary products in
need of complete overhauls and the lack of handovers. Prime rents
continued to decline in the second quarter, down 0.9% to €318 per
sq m. In the satellite area rental levels have remained stable over
six consecutive quarters.
14 On Point • EMEA Corporate Occupier Conditions – Q3 2011
Malmö
Cost: € 230 / sq m Competition: 24,360 sq m Choice: 6.9%
Increased occupier activity saw take-up reach almost 25,000 sq m.
H1 2011 has seen significantly high demand with current take-up
volumes greater than the total volume for the two preceding years.
Weighed against total office stock Malmö occupier activity is the
strongest in Sweden, exceeding both Gothenburg and Stockholm.
The Public service sector was the most active representing a third of
total take-up by volume. One of the largest deals during the quarter
was Regional Office’s signing of 3,600 sq m in Western Harbour. On
the supply side there were no significant projects completing in Q2
and only around 23,400 sq m is due to complete in 2011. However
there is almost 80,000 sq m in ongoing projects of which 46,000 sq
m is due to complete in 2012. The large amount of future supply in
the region will increase the use of rent rebates in new developments
during 2012-13. The trend with a high share of speculative new
supply is still strong in the region; especially in Western Harbour
where over 80% of ongoing project volume remains unsigned. Prime
rents remained stable at SEK 2,100 per sq m.
Manchester
Cost: € 340 / sq m Competition: 16,300 sq m Choice: 13.0%
Occupier choice increased over Q2, driven by the release of second
hand Grade B supply rather than any new completions. Grade A
supply continued to fall, reflecting a vacancy rate of just 2.3%,
compared with the average of 4.3% for the UK major regional
centres. The development pipeline remains switched off with nothing
currently under construction speculatively in Manchester City
Centre. As a result occupiers seeking good quality space in the City
Centre, are likely to be faced with a steadily diminishing range of
options. Despite a slow start to 2011, occupier activity picked up
over Q2 but it continues to fall short of average levels. Activity is
being generated from a variety of sectors, but the majority of
demand emanates from the Services and Professional Services
sectors. Prime rents remain unchanged with landlords continuing to
offer up to 30 months rent free based on a ten year term. Looking
ahead, the lack of Grade A supply could lead to further upward
pressure on prime rents, particularly if a return to pre-letting activity
is witnessed.
Milan
Cost: € 520 / sq m Competition: 93,000 sq m Choice: 9.3%
Activity over H1 2011 increased 57% compared to the equivalent
period last year. Activity continued to be driven by consolidation
with occupiers increasingly looking to maximize space efficiency.
Prime rents remained unchanged at €520 per sq m. The Milanofiori
area saw an increase in rents, as a result of improved access to the
metro. There remains continued appeal for Centre and Semi-centre
locations, with the result that we expect to see some rental growth in
these areas over the next 12 months. We also expect costs to
increase in the Repubblica-Garibaldi zone which will witness the
completion of the Porta Nuova development. In the Periphery and
Hinterland, rents remain under downward pressure and incentives
are still rising. The overall vacancy rate remained stable at 9.3%.
The development pipeline remains constrained with just 35,000 sq
m of new starts in Q2. Speculative starts remain rare and many
projects which are still awaiting planning consent are unlikely to start
without a significant pre-let.
Munich
Cost: € 360 / sq m Competition: 229,300 sq m Choice:10.5%
Occupiers are reaching decisions more quickly with a growing
number now seeking expansion space. This was reflected in
increased activity – with more deals and a large volume of take-up
being witnessed than at any time since 2008. There has been a
particularly strong increase in deals being completed above 2,500
sq m. In terms of choice, only a quarter of the expected 2011
completion volume of 200,000 sq m has been delivered over H1.
This, combined with strong demand, has caused a slight decline in
choice which is now expected to remain stable for the rest of the
year. Completion volumes will decrease significantly in the coming
year. Within the Altstadtring there are currently only four buildings
with available space of 3,000 sq m or more. The prime rent
increased over Q2 and is likely to increase further. Incentives have
been reigned in as landlords become more optimistic about
demand. Rents in secondary areas were stable.
On Point • EMEA Corporate Occupier Conditions – Q3 2011 15
Oslo
Cost: € 463 / sq m Competition: n/a Choice: 8.5%
Occupational demand is healthy and volumes of signed contracts in
the second quarter remain unchanged. The largest contract in the
quarter was EDB Ergo group taking 33,000 sq m in Fornebu. The
public sector, one of the most active occupiers, drove a significant
proportion of leasing volumes and, as employment levels are
forecast to rise, domestic demand for extra space is expected to
increase going forward. Choice increased by 50 bps to 8.5% in the
second quarter. Only 60,000 sq m of space is expected to complete
in 2011 however record volumes of up to 300,000 sq m will be
released to the market in 2012. The vast majority of both volumes
have tenants (Statoil, DnB, Aker, and Statkraft being the largest),
and the vacancy effect of the released space will not be felt until
2013-14. Prime rents have increased to NOK 3,600 per sq m, up
from NOK 3,500 in Q1 2011. With a growing occupier demand for
high standard prime space, rents are expected to continue their
upward trend.
Paris CBD
Cost: € 750 / sq m Competition: 96,200 sq m Choice: 5%
Although leasing volume in Ile de France over H1 2011 are 4% up
on 2010 the pace of take-up has declined over the course of the
year. Paris and the inner suburbs drove 85% of these volumes.
Outperforming submarkets (for H1) included Paris 5/6/7 (+50%),
Paris 3/4/10/11 (+39%), the Central Business District (+6%) and
Paris Centre West. There is a very unequal distribution of supply
and areas like Paris 5/6/7 or Paris 3/4/10/11 are showing shortages
with vacancy rates of 3.6% or Paris 18/19/20 with a vacancy rate of
3%. Paris CBD remains a sought after area for companies and has
maintained a good level of activity since the beginning of the year.
This market is essentially fuelled by small and mid-size transactions
with only one large occupier-sale since the beginning of the year.
Supply is becoming more scarce with vacancy rates declining to 5%.
The immediate supply is low for prime or new buildings. The lack of
supply could impact the market activity before year end. Due to the
shortage of prime product, rents have remained stable and there
were no changes in rent frees. Negotiation conditions vary
according to landlords.
Paris La Defense
Cost: € 550 / sq m Competition: n/a Choice: 5.4%
There was a slight rise in occupier activity in La Défense with take-
up reaching 59,100 sq m by the end of June, a 6% improvement
compared with the first half of 2010. Improvements were also seen
at the La Défense periphery. There is a very unequal distribution of
supply across Paris and areas like Paris 5/6/7 or Paris 3/4/10/11 are
showing shortages with vacancy rates of 3.6% with the CBD at 5%
and La Défense at 5.4% - a reduction from 6.1% at the end of March
and more consistent with 2010. Choice remains plentiful in other
disctricts, especially surrounding La Défense (18.3%). In several
sectors we note a rise in office costs since the start of the year.
These sectors (Paris 5/6/7, La Défense, Southern inner suburb,
Paris 18/19/20) show limited quality supply. Costs for occupiers
seeking space in La Defence have increased from €530 per sq m to
€550 per sq m – a 4% increase – and costs in the second hand
market are around €455 per sq, a 17% discount to prime.
Rome
Cost: € 420 / sq m Competition: 65,100 sq m Choice:6.0%
Occupier activity increased slightly over Q2 totaling around 65,000
sq m. The majority of activity was concentrated in the Eastern area
of Rome, with around 35,000 sq m of take-up in the Tiburtina sub-
market alone. There was also a significant amount of activity within
the Southern areas thanks to two deals in excess of 5,000 sq m to
Saipem and l’Espresso. In contrast Central areas saw a fall in the
level of activity, accounting for less than 20% of take-up in Q2. The
Manufacturing sector accounted for around 60% of activity in the
second quarter, while demand from the Public Administration sector
has continued to fall. Over the first half of the year, around 80% of
take-up was for Grade B space. There is very limited new or Grade
A supply in the market with a relatively low level of completions over
the last few years. Overall vacancy rates remained stable at 6.0%
over the quarter. Prime rents and incentives remained stable at
€420 per sq m with around 11 months rent free based on a six to
twelve year lease.
16 On Point • EMEA Corporate Occupier Conditions – Q3 2011
Rotterdam
Cost: € 195 / sq m Competition: 44,200 sq m Choice:15.5%
Occupier take-up was up 85% q-on-q. This was driven by a 16,000
sq m acquisition by a company from the educational sector (for
office use) as well as an additional two 6,000 sq m deals. The public
sector within Rotterdam is still reasonably active and providing an
element of competition, but this is driven by a need for cost
reduction rather than expansion. The amount of choice was
unchanged at 15.5% as more space was added to the market
offsetting the absorption from occupiers. The amount under
construction also increased which will increase future options and
there are more ambitious longer term plans for development. Rental
conditions were unchanged with prime rents at €195 per sq m and
no change to incentives. There may be some movement in small,
top quality units at around €200 per sq m this year, but the overall
situation will remain flat despite official forecasts factoring in a small
increase.
Stockholm
Cost: € 448 / sq m Competition: 107,500 sq m Choice:11.1%
Leasing volumes of 107,000 sq m were recorded in Q2. While
activity was down q-on-q, take up for H1 2011 was up 80% on the
equivalent period last year. The CBD saw vacancy rates fall to an
historic low of 4.2%. 2001 was the last time Stockholm CBD saw
rates lower than 5%. This has been driven by low volumes of new
speculative office space entering the market. In contrast, many
peripheral submarkets have experienced rising vacancy rates in H1
2011 as average deal sizes declined to approximately 850 sq m, as
occupiers focus on space efficiency rather than expansion. Prime
rents increased from SEK 4,000 per sq m to SEK 4,100 in Q2 with
lower landlord incentives placing further upward pressure on costs.
All submarkets witnessed an increase in rents. Rental growth is
expected to continue with forecasts adjusted to reach SEK 4,300
per sq m at the end of 2011. Secondary rents declined by SEK 100
to SEK1, 900 in Q2.
Stuttgart
Cost: € 216 / sq m Competition: 81,400 sq m Choice:7.0%
Q2 2011 saw a continuation of the strong demand for space from
corporate occupiers, although the lack of suitable premises is
hampering the satisfaction of requirements. Take-up volumes over
H1 were around 119,000 sq m, 88% ahead of H1 2010 and although
the market remains dominated by activity from smaller occupiers a
number of larger requirements – in excess of 5,000 sq m – were
satisfied. This strengthening in occupier activity has led to a
reduction in the amount of choice for occupiers and also drove the
cost of space up slightly to €18.00 per sq m per calendar month.
The majority of lease contracts remain between €10.00 and €15.00
per sq m per calendar month. Incentives have remained stable q-on-
q. Options for occupiers are expected to remain thin this year – with
only 20,000 sq m of space having completed so far this year. Over
H2 a further 80,000 sq m will be delivered but only a fifth of this is
speculative.
The Hague
Cost: € 210 / sq m Competition:11,500sqm Choice: 10.2%
Choice was more or less stable with only a modest uptick in
vacancy rates overall and no meaningful changes at the submarket
level. However choice is expected to increase further with more
releases of space expected from the government, although no firm
timing can yet be ascertained. Competition in the market has been
modest although it should be noted that the half year total of 30,500
sq m was a huge improvement on H1 2010 which recorded only
4,900 sq m. Rental conditions have been stable at €210 per sq m for
some time now and no change was evident in the secondary market
either. There is an expectation that prices could soften, depending
on the amount of supply that emerges from the public sector.
Incentives widened over Q2 in response to this, moving from
between 9 and 15 months rent-free on a five year lease to between
9 and 18 months.
On Point • EMEA Corporate Occupier Conditions – Q3 2011 17
Utrecht
Cost: € 220 / sq m Competition: 14,000 sq m Choice:13.3%
The amount of choice increased slightly in Q2. Competition was light
at around 14,000 sq m let over Q2. Expectations for 2011 are for a
flat leasing market with few significant occupational requirements of
any scale and no growth sector increasing competition. There has
been an increase in the amount under construction. The majority of
this is already pre-let and is focussed on the City Centre. There are
plans for more development starts, which would add some more
choice to the market but as occupiers relocate there will also be
more second hand options. Prime rents decreased by 2.2% q-on-q
to €220 per sq m. This was led by a decrease in the Maliebaan area
whereas rents were broadly stable elsewhere. The only other
exception was the Papendorp district where the rents fell by €10 per
sq m over the quarter.
Western Corridor
Cost: € 311 / sq m Competition: 15,700 sq m Choice:14.2%
Q2 witnessed a marked uplift in active named occupier demand,
with c.300,000 sq m of requirements, an increase of 45% compared
with the previous quarter. However, this has failed to translate into
deals over Q2, with leasing volumes down 61% year-on-year.
Occupier confidence remains relatively weak and deals are taking
longer to complete. There are a significant number of deals in
solicitor’s hands and, with growing active demand, we expect this to
translate into more activity over H2 2011. Overall supply fell in Q2,
to reflect a vacancy rate of 14.2%. While some space has been
reabsorbed through leasing activity, a number of buildings have also
been withdrawn through a change from office to residential uses.
Grade A supply fell to its lowest level since 2008, reflecting a
vacancy rate of 5.9%. There is currently around 26,000 sq m of
space under construction speculatively, although none of this is
scheduled to complete in 2011. Prime rents increased marginally,
driven by further upward pressure in Chiswick. Incentives were
stable at 30 months rent free on a 10 year lease in the Thames
Valley and 24 months in West London.
Zurich
Cost: € 766 / sq m Competition: n / a Choice: 2.2%
Strong demand for office space in recent quarters has led to rising
rents and low levels of availability in the market. Supply of new
Grade A office space is, however, increasing with Zurich North and
West showing increased levels of choice. Many occupiers are
currently actively relocating to this new, modern space from their
inner city locations. One highlight of the market is the new “Prime
Tower”, a 130m high office tower development that will offer room
for approximately 2,000 employees and upon opening will be the
tallest office building in Switzerland. With new, modern Grade A
supply in the market competition is easing and with occupiers
relocating from the CBD to new development areas, choice in the
CBD is actually increasing. Overall occupation costs in the Zurich
market remain high. Prime rents paid at the moment are at around
CHF 935 / sq m per annum and are expected to increase further
over the remainder of 2011 though at a declining pace of growth.
18 On Point • EMEA Corporate Occupier Conditions – Q3 2011
Western European Corporate Occupier Markets at a glance
Competition
(Take-up as a % of stock) Choice (% Vacancy Rate) Costs (Rents EUR / sq m / pa)
Market Q2 2011 12-month outlook Q2 2011 12-month outlook Prime, Q2 2011 12-month outlook
WE
Amsterdam 0.8 � 17.1 � 335 �
Antwerp 0.9 � 11.8 � 145 �
Athens n/a � 15.1 � 270 �
Barcelona 1.3 � 13.5 � 225 �
Berlin 0.9 � 8.8 � 252 �
Birmingham 0.9 � 20.0 � 340 �
Bristol 0.6 � 12.3 � 328 �
Brussels 0.5 � 11.2 � 310 �
Cardiff 2.5 � 12.3 � 250 �
Copenhagen n/a � 7.9 � 241 �
Dublin 1.0 � 20.6 � 355 �
Dusseldorf 0.8 � 12.0 � 282 �
Edinburgh 0.7 � 7.0 � 328 �
Eindhoven 1.6 � 12.0 � 185 �
Frankfurt 1.2 � 14.3 � 396 �
Geneva n/a n/a 0.9 � 786 �
Glasgow 0.4 � 10.5 � 328 �
Gothenburg 0.5 � 8.7 � 246 �
Hamburg 0.8 � 9.3 � 276 �
Helsinki n/a � 10.3 � 294 �
Leeds 1.3 � 10.7 � 310 �
Lisbon 0.4 � 12.1 � 228 �
London City 0.6
� 6.9 � 656 � London West End 0.9 � 4.6 � 1132 � Luxembourg 1.4 � 6.6 � 456 �
Lyon 1.4 � 6.8 � 270 �
Madrid 0.6 � 10.3 � 318 �
Malmö 1.2 � 6.9 � 230 �
Manchester 0.8 � 13.0 � 340 �
Milan 0.8 � 9.3 � 520 �
Munich 1.2 � 10.5 � 360 �
Oslo n/a � 8.5 � 463 �
Paris CBD 1.4 � 5.0 � 750 �
Paris La Defense 1.1 � 5.4 � 550 �
Rome 0.5 � 6.0 � 420 �
Rotterdam 1.2 � 15.5 � 195 �
Stockholm 1.0 � 11.1 � 448 �
Stuttgart 1.0 � 7.0 � 216 �
The Hague 0.2 � 10.2 � 210 �
Utrecht 0.6 � 13.3 � 220 �
Western Corridor 0.2 � 14.2 � 311 �
Zurich n/a n/a 2.2 � 766 �
On Point • EMEA Corporate Occupier Conditions – Q3 2011 19
CENTRAL AND
EASTERN EUROPE:
Corporate Occupier
Conditions
Central and Eastern Europe continued to experience solid
economic growth in the first half of 2011, building on the strong
recovery seen in 2010, with Global insight currently forecasting
GDP growth of 3.7%* in 2011. However the regions proximity to
the Eurozone, in terms of geography, trade and investment;
mean that Central and Eastern Europe will not be immune from
the potential economic fall out stemming from Eurozone
sovereign debt concerns. Those countries with strong domestic
demand, such as Poland, are most likely to sustain current levels
of economic growth should the outlook for the Eurozone
deteriorate further. Despite these downside risks to the regional
growth outlook, the CEE region remains on course to outperform
its western European neighbours.
Putting aside potential macroeconomic headwinds, as it stands,
solid economic growth is continuing to drive robust demand for
real estate across the region. Many markets continue to record
increases in office take up including all the core CEE markets of
Warsaw, Prague, Moscow and Budapest as well as markets
including Bratislava and Bucharest. We are also seeing tentative
signs that corporate occupier demand is becoming more
expansionary in nature. Prague saw the volume of lease
renewals as a proportion of take up reduce over both the quarter
and the first half of 2011, with large-scale corporate relocations
dominating the stats. In Bucharest too, the return of pre-leasing
was in evidence and is forecast to extend further through the
year. It seems Corporate occupiers in CEE are beginning to
move beyond the renewal and renegotiation activity that has
characterised take up over the last 24 months.
While occupier activity strengthens the supply environment
continues to challenge the international occupier in Central and
Eastern Europe. Despite headline vacancy rates remaining in
double figures in markets including Moscow, Prague, Bucharest,
Budapest and Zagreb vacancy is trending downwards in the
majority of the CEE markets we cover in this report. As has
consistently been the case over recent years in Central and
Eastern Europe, the size of the Grade A market of interest to
international occupiers is often significantly smaller than the
headline figures suggest. Limited development pipelines will
mean the choice available in a range of CEE markets will
continue to erode.
As the regional clock below illustrates, rents are already rising or
forecast to rise in Moscow, Warsaw and St Petersburg. All of the
other markets we cover in CEE are expecting rents to remain
broadly stable with increases likely in the medium term. With a
fairly static development pipeline, the issue of whether demand
for space will be sustained will be the key question impacting
potential rental growth in CEE in the second half of 2011.
*Central Europe and the balkans
Exhibit 11: Central & Eastern Europe Office Occupier Clock
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Belgrade
Bucharest, Budapest, Sofia, Zagreb
Tri-City
Bratislava, Kiev, Krakow, Prague
St. Petersburg
Warsaw
Moscow
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
BelgradeBelgrade
Bucharest, Budapest, Sofia, ZagrebBucharest, Budapest, Sofia, Zagreb
Tri-CityTri-City
Bratislava, Kiev, Krakow, PragueBratislava, Kiev, Krakow, Prague
St. PetersburgSt. Petersburg
WarsawWarsaw
MoscowMoscow
20 On Point • EMEA Corporate Occupier Conditions – Q3 2011
Belgrade
Cost: € 186 sq m Choice: 23%
The pace of the economic recovery in Serbia is expected to gain
momentum throughout 2011, after modest growth in 2010. Yet, high
levels of unemployment and rising inflation are causing slight
obstacles. During 2010 office supply totalled some 72,000 sq m of
good quality office space. However, development activity and
expected completions continue to trend down with low levels of
completions in the first half 2011. A couple of projects are currently
under construction (ca. 118,000 sq m) and are expected to be
delivered over the next two years. For the time being, office vacancy
levels remain high, standing at around 23% for the overall market
having increased from around 11% in 2008. Demand for office
space remains focused on units of up to 500 sq m, and driven by
relocations as occupiers take advantage of recent rental falls. Prime
rents paid in the Belgrade city centre and New Belgrade remained
stable over the quarter at EUR 15.50 / sq m pm. Rents for class B
office space in the wider city centre area remain in the area of EUR
10-13 / sq m pm.
Bratislava
Cost: € 198 sq m Choice: 9.1%
Q2 2011 saw healthy levels of demand across Bratislava with take-
up totalling at around 31,000 sq m, up from 11,000 sq m in Q1. Total
office stock in the capital remained stable at 1.38 million sq m, with
only one development so far this year. As a consequence, the
overall vacancy rate continued to decrease reaching 9.1% at the
end of Q2 2011, down from 10.1% at the end of 2010. Looking
ahead, the development pipeline remains fairly limited in the short
term, with just 45,000 sq m of modern office space expected to be
completed in the second half of 2011. With demand picking up,
overall vacancy rates should see some further downward movement
in the next 12 to 18 months. However, demand is primarily focused
on the prime end of the market and therefore secondary product
could see an increase in availability. Prime rents remained stable at
€16.50/ per sq m per month but could see some upward movement
towards the end of 2011. Rents range from €10.50 – €12.50 / sq m
pm in the Inner City Zone and from €8 - €10/ sq m per month in the
Outer City District.
Bucharest
Cost: € 228 / sq m Choice: 17.2%
Leasing activity continued to pick up in the first half of 2011, with
total take-up, including renewals reaching 115,000 per sq m. With
68,500 per sq m transacted (new leases) in Q2 2011, we forecast
the full year 2011’s take up to exceed 220,000 per sq m. The health
care industry still drives the city’s leasing activity, capturing 47% of
take up, while the second most active industry is finance/banking,
attracting 18%. The overall vacancy rate is estimated at 17.2% in
the city, although it is important to note the differences in
submarkets and grading of the office buildings. Prime buildings
located centrally witnessed vacancy rates in single digits, while the
overall rate remains elevated due to high vacancy rates of Class A
buildings in decentralized locations, such as Pipera North and
Baneasa. Rates are expected to fall by the end of the year. Prime
office rents remain unchanged at €228, for the fourth quarter in a
row, and a rise in rental levels is unlikely in the short-term due to
supply levels.
Budapest
Cost: € 240 / sq m Choice: 20.6%
Gross take-up activity in the first half of 2011 totalled 163,700 sq m,
of which 41% were lease renewals. Although demand did not
increase compared to the same period last year, it showed a similar
stable volume. Vacancy levels declined slightly in the second
quarter to 20.6% following its peak of 21.6% in Q3 2010. Although
availability is relatively high in the Budapest office market it is rather
difficult to find high quality contiguous large floor plates and
therefore occupiers with significant space requirements need to
consider built-to-suit options or pre-lets. The volume of new
completions has been cut back drastically since 2010 with only two
new office buildings completed. Prime rents remained stable at
€240 and in order to secure tenants in their buildings landlords are
offering greater rental incentives. Landlords are now willing to pay
for moving contributions or higher quality fit-out/greater fit out and
the highest levels of incentives are available in the submarkets.
On Point • EMEA Corporate Occupier Conditions – Q3 2011 21
Kiev
Cost: € 290 / sq m Choice: 12.5%
The Kiev market has witnessed a steady increase in total office
stock over the last few years. An additional 60,200 sq m of new
office space is due to complete in the second half of the 2011,
although not necessarily in the best locations. Demand for office
space is still price sensitive in the Kiev market, with the highest
demand for Grade B stock, although movement from Grade B to A
was noticeable. Occupier activity was relatively stable compared to
last quarter at 21,310 sq m. Leasing was dominated mainly by
international companies with the manufacturing and business
service companies the most active. There were no new completions
in Q2 and the net absorption was driven mainly by existing
companies renegotiating, expanding or relocating to the same or to
larger premises. Choice declined with the vacancy rate falling 100
bps to 12.5% driven by increased market activity and lack of new
supply. Prime rents remained stable at USD 420 / per sq m pa but a
slight increase is expected by the end of 2011 as demand recovers
Krakow
Cost: € 180 / sq m Choice: 11%
Kraków has witnessed a sharp increase in occupier activity. In the
first half of 2011 demand reached approximately 30,000 per sq m
(excluding renewals). Major lease transactions included Shell
(renegotiation of 16,100 per sq m in Krakow Business Park) and
Sabre (renegotiation of 8,900 per sq m in Buma Square). As the
market continues to benefit from its position as a major centre for
business outsourcing, the upward trend is expected to be sustained.
Kraków also witnessed high construction activity in Q2, both
speculative and pre-leased. Currently over 60,000 sq m is in active
development stage. The vast majority of new office space to come
on to the market in Poland was in Krakow and choice is relatively
plentiful with vacancy at 11%. Vacancy rates remained stable over
the quarter but are expected to trend downward before the end of
the year. Prime headline office rents in the best locations have
stabilized at 14-15 EUR/sq m/ month and as supply is expected to
decline upward rental pressure is expected by the end of 2011.
Moscow
Cost: € 828 / sq m Choice: 16.8%
An improving economy resulted in robust demand in Moscow with
take-up figures the second-highest in Europe after Paris. H1 2011
office take-up reached 834,400 sq m, 16% higher than in H1 2010.
Completion levels in Q2 2011 were the lowest since the end of 2004
with approximately 97,233 sq m of office space completed. Despite
this the vacancy rate increased to 16.8%, up 170 bps from the
previous quarter. The current office pipeline however, remains
relatively high. Several proposed measures were announced in
March in attempt to control current levels. Even with the new
limitations, the development pipeline stands at 2.5 million sq m to be
completed in the next three years. Rental costs for prime space
reached USD 1,200 per sq m per year (excluding operating
expenses and VAT), a 20% QoQ growth. Class A base rents
increased at 13% QoQ and ended Q2 at USD 850 per sq m per
year. Classes B+ and B- base rents remained unchanged at USD
400-600 and USD 300-400 respectively.
Prague
Cost: € 252 / sq m Choice: 11.9%
Gross take-up in the Prague market reached 88,019 per sq m in the
second quarter of 2011, up 79.6% compared to Q2 2010. Thanks to
large occupiers such as UniCredit Bank and Price Waterhouse
Coopers the share of renegotiations decreased to 13.5% and 23.3%
for both Q1 and H1 respectively, a significant decline of 42% on
renegotiation levels last year. On the supply side, no new
completions were recorded in the market. Currently there is
approximately 86,357 sq m of new and refurbished office space
under construction and expected to complete in H2 2011. The
limited new supply on the market combined with increased demand,
has contributed to a decline in the vacancy rate to 11.9%, 110 basis
points below Q1 level. Prime rental levels have remained stable
over the last eight quarters and stand at €252. Rental levels on non
prime buildings have also remained stable and the pressure to
provide incentives now differs significantly, from property to
property.
22 On Point • EMEA Corporate Occupier Conditions – Q3 2011
St Petersburg
Cost: €379 sq m Choice: 12.6 %
Demand was strong in the St. Petersburg market in Q2, although
somewhat lower thanQ1 levels. Only 59,760 sq m of Class A and B
office building space was absorbed compared to 108,560 sq m in
the previous quarter. Part of this space was absorbed via office
space purchases and owner-occupied completions. On the supply
side office stock completions reached 16,130 sq m in Q2 2011.
Total new supply in H1 2011 reached 71,200 sq m. The major share
of completions announced for 2011 have been rescheduled for
delivery in the second half of the year, with the completion of Phase
2 of the St. Petersburg Plaza project and Phase 1 of the Airport city
St. Petersburg, a mixed-use project. Choice in St. Petersburg has
been gradually declining since the beginning of 2010. At the end of
Q2 2011, the market average was 12.6% down from 15% in the
previous quarter. Prime rents increased 8% to €379 per sq m this
quarter; however potential tenants remain very sensitive to pricing,
which is likely to limit further rental growth.
Sofia
Cost: € 216 / sq m Choice: 34.0%
The overall occupier market remained relatively subdued in Q2
2011. However, there are some companies now looking to expand,
as market conditions are currently very favourable for tenants. The
considerable amount of new office space added to the market in
recent years has pushed the overall vacancy rate up to around 34%,
approximately twice as high as recorded at the end of 2008. Since
the start of 2005, around 800,000 sq m of modern office space has
been delivered, which is well above the absorption capacity of the
city. With ‘just’ 73,000 sq m of additional space due to be completed
in 2011 and demand seeing some early signs of recovery, vacancy
rates should stabilise and even see some marginal downward
movement towards the end of 2011. Prime headline rents, which
have recorded a 20% drop over the last 18 months, have stabilised
in the first half of 2011 at €18 per sq m pm. Headline rents are not
expected to rise in the short term. Incentives remain high as
landlords struggle with the high vacancy in their assets.
Tri-City
Cost: € 144-174 / sq m Choice: 10.2%
Take-up for the first half of 2011 was just 7,000 sq m (excluding
renewals), slightly lagging behind the total demand last year. Over
the last couple of months, demand has diminished considerably and
most of the take up now is from relocations from older or historical
buildings. Take up is also anticipated to remain fairly flat over the
coming quarters. Vacancy levels are currently at 10.2%, down
140bps from last quarter, as no new buildings were released to the
market. Vacancy is expected to increase by the end of the year as
an increase in projects creates more favourable terms for occupiers.
For 2011, 18,400 sq m of space is expected to complete by the end
of 2011 while 30,400 sq m is expected to complete in 2012. Prime
rents are currently witnessing negative rental growth, but are
expected to bottom out soon. As it stands, prime rents in Gdynia are
at ca. €14.5 per sq m/month. Sopot and Gdansk are slightly cheaper
at €12 -€14 per sq m/month.
Warsaw
Cost: € 300 / sq m Choice: 6.2%
The Warsaw office market continues to see high levels of occupier
demand. Demand reached 77,800 per sq m in Q2 2011 and totalled
224,700 per sq m for H1 - 55% up from the equivalent period last
year. Supply levels remain moderate, with only four projects
completed in H1 2011, totalling 28,350 sq m. In 2011, approximately
111,650 sq m remains in the pipeline, with the majority of this being
in non-central locations. Following the stabilisation of the vacancy
rate in 2010, sound demand and limited new supply has continued
to push this rate down. At the end of Q2, 2011 approximately 6.2%
of modern office stock in Warsaw remained vacant (6.7% in the
CBD, 9.0% in the City Centre and 5.2% in the Non-Central
locations). The vacancy rate is expected to decrease further due to
the relatively low number of new completions. Prime headline rents
in Warsaw are growing with the City Centre, Upper-South and
South-West submarkets first to witness rental growth. We expect to
see further moderate rental growth over the next 12 months.
On Point • EMEA Corporate Occupier Conditions – Q3 2011 23
Zagreb
Cost: € 180 / sq m Choice: 8.5%
Demand for office space remains low and occupiers continue to act
with caution. Nevertheless, a modest recovery in occupational
demand has been witnessed. Large national and international
occupiers, which have best weathered the economic turmoil, have
accounted for much of the occupational activity over the past six
months. Much of this activity is around relocations and upgrading as
occupiers take advantage of reduced rental levels. On the supply
side, vacancy rates remained broadly stable at between 10% and
12% for the city as a whole (Grade A at 8.5%). Approximately
157,000 sq m of space is currently under construction, of which
approximately 23,000 sq m will be delivered by the end of 2011.
Grade A office space is available at an average of €15 / sq m pm,
with premiums paid for small units in prime CBD locations (up to €17
/ sq m pm). Space in less central locations is usually available at
€12 / sq m pm. Incentives in the form of rent free periods or fit-out
contributions continue to be a feature of the market and are
expected to be offered until vacancy rates start to decrease.
Central & Eastern Europe Corporate Occupier Markets at a glance
Choice (% Vacancy Rate) Costs (Rents EUR/sq m/pa)
Market Q2 2011 12-month outlook Prime, Q2 2011 12-month outlook
CEE
Belgrade 23 � 186 �
Bratislava 9.1 � 198 �
Bucharest 17.2 � 228 �
Budapest 20.6 � 240 �
Kiev 12.5 � 290 �
Krakow 11.0 � 180 �
Moscow 16.8 � 828 �
Prague 11.9 � 252 �
St Petersburg 12.6 � 379 �
Sofia 34 � 216 �
Tri-City 10.2 � 144-174 �
Warsaw 6.2 � 300 �
Zagreb 8.5 � 180 �
24 On Point • EMEA Corporate Occupier Conditions – Q3 2011
MIDDLE EAST AND
AFRICA: Corporate
Occupier Conditions
The outlook for a number of real estate markets in the Middle East
and North Africa remains clouded by the continuing political,
economic and social impacts associated with the ‘Arab Spring’.
Tourism and investment have been hit hard and are expected to
continue to slump in the near term given the new political
uncertainties facing the region, while normal business activities have
also been impaired by the crisis. As a result Global Insight have
downgraded 2011 real GDP growth for the MENA region to 3.9%,
down from 4.2% in April and 5.3% prior to the crisis.
This process has inevitably meant that international occupiers are
showing greater caution in the region, with expansion plans placed
on hold until greater clarity emerges about the long term implications
for Egypt and North Africa in particular.
Despite the regional troubles, MENA oil and gas exporters—
particularly in the Gulf region—are likely to see a bump in economic
growth thanks to higher oil output and increased government
spending. The impacts of increased government spending are also
being seen in real estate markets such as Saudi Arabia and Qatar,
where the Government sector plays a key position in take up
figures.
Office markets across the region continue to offer opportunities for
occupiers. Dubai remains massively oversupplied with overall
vacancy running at 44% and Abu Dhabi too continues to see
vacancy rates trend upwards, rapidly altering the situation of limited
modern office space experienced prior to the global financial crisis.
Saudi Arabia is also seeing choice increase for occupiers with a
number of large scale developments expected to complete over the
next 2-3 years. Outside of the UAE and Saudi Arabia, choice is
generally more limited with the provision of high quality space
solutions remaining constrained. In North Africa there may be some
salvation from the development pipeline, although as has been seen
in the case of Cairo, recent political unrest will serve to reduce the
amount and speed of space delivered to the market. Tel Aviv has
also faced acute supply shortages over the last couple of years,
although there are now signs developers are beginning to react with
the pipeline likely to deliver new grade A space to the Tel Aviv
market by 2013.
Costs for the occupier continue to vary considerably across this
diverse region, with the tight supply environment fuelling rental
growth in Algiers, Casablanca and Tel Aviv. Other markets in the
Middle East and North Africa continue to see soft rental conditions.
Although prime rents in Dubai remained stable over the quarter,
further falls are expected before year end, and the large volumes of
completions expected in Abu Dhabi are also expected to put
downward pressure on rents. In those MEA markets with an
abundance of supply, occupier-favourable conditions are likely to
remain for the foreseeable future.
Exhibit 12: MEA Office Occupier Clock
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Cairo
Abu Dhabi
Dubai
Doha
Jeddah, Riyadh
Johannesburg, Tunis
Istanbul
Algiers
Casablanca, Tel Aviv
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
CairoCairo
Abu DhabiAbu Dhabi
DubaiDubai
DohaDoha
Jeddah, RiyadhJeddah, Riyadh
Johannesburg, TunisJohannesburg, Tunis
IstanbulIstanbul
AlgiersAlgiers
Casablanca, Tel AvivCasablanca, Tel Aviv
On Point • EMEA Corporate Occupier Conditions – Q3 2011 25
Abu Dhabi
Cost: € 347 / sq m Choice: 11.5%
The Abu Dhabi office market continues to see high levels of office
supply. With the completions of Tower One and the Guardian Tower
another 68,000 sq m of office space was added over the quarter. In
H2 2011 a further 244,000 sq m is expected to be delivered. Despite
projects being cancelled or delayed, another 1.2 million sq m could
enter the market before the end of 2013. The vacancy rate increased
slightly over the quarter to 11.5% and with more supply in the
pipeline, is expected to rise further in the short to medium term. In
terms of demand many occupiers are actively pursuing relocations
and/or looking to upgrade from lower grade space taking advantage
of the fallen rental levels and increased supply. Occupiers remain
price sensitive in this occupier-favourable market. Increasing choice
will spark a wave of increased rental incentives and other
inducements to encourage relocation. Average Grade A rents have
declined to around AED 1,850 per sq m per annum with average
Grade B rents declining faster to c, AED 1,300 per sq m per annum.
Algiers
Cost: € 450 / sq m Choice: 4%
The political situation in Algeria continues to stabilise and the
government has introduced measures to improve the situation and
ensure stability. Overall, the economic outlook for Algeria continues
to improve, driven by increased revenues from oil production.
Demand for office space in Algiers remains dominated by local
occupiers and established foreign companies. The provision of
international Grade A office space remains very scarce. Supply of
new space is often limited to residential conversions in areas such as
Hydra & Val de Hydra. The centre of Algiers continues to suffer from
poor accessibility, security threats and limited availability of space.
The ongoing construction of additional towers will add modern office
space with larger floor plate availability than the general average of
300-400 sq m. However, these developments will not be delivered in
the near-medium term. Overall Grade A office space is available at
rents of DZD 3,500 - 4,200 / sq m per month. Good Grade B space
which continues to compete with Grade A space given its low
availability remain at levels of DZD 2,500-3,000 / sq m per month.
Cairo
Cost: € 330 / sq m Choice: 30%
The recent turmoil has affected the office pipeline and while only a
few projects have officially been cancelled many projects are likely to
be delayed. Over the next 12 months approximately 70,000 sq m of
new, purpose built Grade A office space is expected to be completed
subject to short term stability. New supply will continue to be added
to the new, preferred office locations of the satellite areas New Cairo
and 6th of October (Smart village) which offer modern office stock,
access to business services and amenities for staff, enhanced
security and the opportunity to avoid the congested and polluted
downtown areas of Cairo. Occupier activity continues to be focused
on upgrading at reasonable rental levels. While activity is returning to
the market, many occupiers remain in a wait-and-see mode until the
medium-term outlook becomes clearer. The market is therefore
expected to remain occupier-favourable. Average Grade A rents
slipped slightly to US$ 23 per sq m per annum and prime rents stand
at around US$40 per sq m per annum. Rents could decrease further
over the short-term as supply exceeds demand.
Casablanca
Cost: € 220 / sq m Choice: 10%
The Casablanca office market continues to lack modern office space
of international Grade A quality. While development activity is
ongoing with new completions expected for the remainder of 2011
and for 2012, the majority of the space will be of Grade B or A-
quality, designed to suit local demand. While the supply shortage is
likely to improve in the medium to longer term the lack of modern
Grade A stock continues to be a market constraint and it will remain
difficult to for occupiers to find large single floor plates in excess of
1,000 sq m. These larger units are likely to be more frequently
available in macro developments such as the Marina or Anfa Place,
which will be developed on euro-norm standards, alongside some
singular developments in the area of Sidi-Maârouf. Occupier demand
remains stable, but demand has toned down as an indirect result of
the general decline in business confidence in the Maghreb area. In
the core areas rents are around MAD 210 /sq m per month. Rents for
new Grade A new space in non-central areas increased marginally to
MAD 150 / sq m per month.
26 On Point • EMEA Corporate Occupier Conditions – Q3 2011
Doha
Cost: € 515 / sq m Choice: 10 %
The Doha office market remains oversupplied. Some recent
developments in the West Bay area were taken by government
entities, but are under utilised and currently around 30 new high-rise
office developments are under construction in the area. Apart from a
few larger requirements, many companies are seeking office space
in smaller unit sizes. Demand is likely to fall short of the huge
amount of supply entering the market. The situation in neighbouring
Bahrain has calmed from the turmoil a few months ago and while
there remains speculation over some financial institutions relocating
their operations to Qatar this has not yet materialised. Rental levels
for prime space remain in the area of QAR 2700 / sq m per annum.
Average Grade A rents remain under pressure and declined over
the quarter to QAR 1720 / sq m per annum and given the future
supply outlook, rents are expected to decrease further. The market
therefore remains occupier-friendly and landlords have shown
increased flexibility on lease terms and rental levels.
Dubai
Cost: € 303 / sq m Choice: 44%
Oversupply of office space remains a key fundamental of the Dubai
office market. However, over the quarter there were no significant
additions. Another 1.2 million sq m is scheduled to complete by
2013 but with developers continuing to cancel or delay projects this
could reduce further. City-wide vacancy rates remained stable over
the quarter at 44%. Vacancy rates for preferred single ownership
properties in the CBD remained unchanged, too, standing at 27%.
Occupier demand continues to focus on these kind of properties in
the CBD and certain free zones (such as TECOM) with demand for
strata titled units or space in less established locations being very
limited. Prime rents in the CBD remained unchanged again over the
quarter at AED 1,615 per sq m pa. Rents for poorer quality buildings
and those in less established locations have continued to decline in
the face of increased supply and limited occupier demand. Overall
the Dubai office market continues to favour occupiers who enjoy a
range of choice at increasingly competitive rents. In most locations
rents are expected to decline further over the second half of 2011.
Istanbul
Cost: € 360 / sq m Choice: 8.4 %
The Istanbul office market continues to see a revival of occupier
activity based on strong economic performance. The Umraniye
submarket remains the most active submarket – offering plentiful
new, high quality supply at competitive rental levels in comparison to
the CBD. Overall, take-up in H1 2011 was three times stronger than
in the same period last year and volumes are expected to increase
further. On the supply side, choice increased q-on-q to 8.4% but
vacancy rates in the CBD are as low as 2.4%. Rates remain highest
in the non-CBD locations of the European side (c. 16%).
Approximately 120,000 sq m of new office space completed during
H1 2011, almost double the amount delivered in H1 2010. Between
now and the end of 2013, c.637,000 sq m is expected to complete,
with around 35% of this in the CBD and another 35% on the Asian-
side. Based on good fundamentals and low vacancy in the CBD,
prime rents are expected to increase over the next six months after
having stood stable at €360 / sq m pa since Q1 2009.
Jeddah
Cost: € 151 / sq m Choice: 14%
The Jeddah office market remains oversupplied. Overall, it is
expected that c.163,000 sq m of new office space will enter the
market this year – a record level. Going forward, the pipeline is
expected to decrease with completions of 115,000 sq m expected
during 2012. On the demand side, the situation remains broadly
unchanged with most demand from Government agencies or
affiliated organisations. While there is demand to relocate to new
and better quality space, occupiers remain price sensitive, with
many occupiers being aware of their stronger position and usually
only deciding to relocate on neutral cost terms. Average Grade A
rents softened slightly over the quarter to SAR 820 / sq m pa. Given
new supply, vacancy is expected to increase while rents are
expected to decline further over the next 12 months. It is expected
that the imbalance between supply and demand will result in the
emergence of rent free periods and other incentives which will result
in widening the gap between asking and effective rents. Overall,
market conditions are expected to remain occupier favourable
On Point • EMEA Corporate Occupier Conditions – Q3 2011 27
Johannesburg
Cost: € 220 / sq m Choice: 6-7%
Demand for office space is slowly picking up with the number of
requirements growing. Choice is decreasing with vacancy rates of c.
6-7%. “Triple A” space remains particularly scarce. Average Grade
A quality is more widely available with the majority of the space in
units of 500-1,000 sq m. The market does remain occupier friendly.
Prime rents were stable q-on-q and are in the range of ZAR 170-180
per sq m per month. Grade A space is available in the range of ZAR
130-150 per sq m per month and A-/B+ space at ZAR 100-120. The
transport situation continues to improve with the Gautrain network in
full operation and access to the network has become a key driver for
local office markets. While the public transport systems continue to
improve, energy costs are becoming a key concern for occupiers.
Recent jumps in utility prices of up to 30% have substantially
increased operating costs and building have ensured that building
efficiency plays an increasing role in property decision making.
Riyadh
Cost: € 184 / sq m Choice: 10%
The Riyadh market continues to expand with a potential pipeline of
c.1.4 million sq m, due to complete by end-2014. Although it is likely
that not all of this will be delivered on time as developers postpone
or delay projects, it will undoubtedly increase choice. Banks reduced
appetite to fund development will also have a drag effect on the
pipeline over the medium term. On the demand side, public sector
entities remain the biggest source of demand, followed by
healthcare as the country’s huge stimulus measures take effect.
Demand from multinational companies remains subdued. Relocation
and upgrading to higher quality stock offering improved workspace,
security and increased parking remains a key demand driver.
Vacancy levels remained stable q-on-q but will move up as large
scale development projects are delivered. Rents remain stable at
SAR 1,000 / sq m pa but costs are expected to decrease with
significant falls expected in 2013/2014, when new market supply
peaks. Against this backdrop, rents for secondary product are
expected be under even greater pressure.
Tel Aviv
Cost: € 290 / sq m Choice: 3-4%
Israel’s economy continues to deliver strong growth despite
headwinds at the global level. Supply for Grade A space remains
tight in the Tel Aviv market. With firm economic growth, many
occupiers have switched to expansion mode and are moving to
larger units – if they can find and secure them. Solid market
conditions and improving lending conditions have strengthened
developer confidence and planning for new schemes is underway,
however schemes that started at the end of 2010 and over the last
quarter will take until 2013/2014 to be completed. Prime rents
remained stable over the quarter at ILS 110-120 / sq m per month
plus service charges. Prime rental stability is due to the fact that
landlords are meeting reluctance from occupiers for paying rents at
higher levels. This upward pressure has driven some footloose
occupiers outside the centre where modern space is more widely
available and trading at a discount (ILS 80-90 / sq m pm).
Tunis
Cost: € 80 / sq m Choice: 12 -15%
Although business life has largely returned to normal in Tunis, the
operational environment continues to be adversely affected by the
risk of further protests as well as ongoing industrial strikes and
disruptions to economic activity. With regards to the office market
Tunis remains in an early process of forming an office market of
international standard. The majority of the existing stock in the
market does not meet international standards, however, and only a
fraction of the market is available for lease as local private
developers prefer selling a building after completion for owner
occupation. The main area for new construction of Grade A office
space remains around the “Lac de Tunis” which is increasingly seen
as a the new prime office area as it also offers a more secure
environment. For the short term, rents are expected to remain
unchanged at around TND 160 / sq m per annum with current
occupiers carefully assessing the situation and putting expansion
plans on hold. A set of developers is, however, expected to
capitalise on increased demand for offices outside the city centre.
28 On Point • EMEA Corporate Occupier Conditions – Q3 2011
Middle East and African Corporate Occupier Markets at a glance
Choice (% Vacancy Rate) Costs (Rents EUR/sq m/pa)
Market Q2 2011 12-month outlook Prime, Q2 2011 12-month outlook
MEA
Abu Dhabi 11.5 � 347 �
Algiers 4 � 450 �
Cairo 30 (Grade A: 5) � 330 �
Casablanca 10 � 220 �
Doha 10 � 515 �
Dubai 44 � 303 �
Istanbul 8.4 � 360 �
Jeddah 14 � 151 �
Johannesburg 6-7 � 220 �
Riyadh 10 � 184 �
Tel Aviv 3-4 � 290 �
Tunis 12-15 n/a 80 n/a
Business Contact: Corporate Solutions
Vincent Lottefier
Chief Executive Officer EMEA Corporate Solutions Paris +33 1 40 55 49 92 [email protected] Report Contacts: Research
Dr Lee Elliott
Director EMEA Research London +44 (0)20 3147 1206 [email protected]
Tom Carroll
Associate Director EMEA Research London +44 (0)20 3147 1207 [email protected] Acknowledgements: We gratefully acknowledge the help and assistance of the following Jones Lang LaSalle alliance partner firms in the preparation of some of this material: Akershus Eiendom AS, Athens Economics and Sadolin & Albæk.
EMEA Corporate Occupier Conditions – August 2011 OnPoint reports from Jones Lang LaSalle include quarterly and annual highlights of real estate activity, performance and specialised surveys and forecasts that uncover emerging trends.
www.joneslanglasalle.eu
COPYRIGHT © JONES LANG LASALLE IP, INC. 2011. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of
Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We
would like to be told of any such errors in order to correct them.