European office market vacancy rate drops to lowest level in seven years

According to Savills the average vacancy rate for the European office market was 9.37% in Q1 2015, which is the lowest level recorded since 2009. The firm predicts vacancy may soon fall to 2007/2008 levels of less than 9.0%. 

Eri Mitsostergiou, head of European research at Savills, comments: “With development completions still limited in almost all office locations many European cities appear to be undersupplied. This year is expected to see a 9% drop in development completions. However construction activity is slowly picking up driven by improved financing conditions for speculative schemes and we expect completions to increase by 15% in 2016.”

Savills finds the lowest versus highest vacancy rates continue previous trends with the lowest vacancy rates being recorded in London West End, Berlin and Stockholm at 3.8%, 4.3% and 5.75% respectively. The highest vacancy levels were recorded in Athens, Amsterdam and Warsaw at 18.5%, 16.1% and 13.4% respectively.

The firm reports that scarcity of prime office space in some of the key European CBD locations caused rental growth to slow down slightly from 4% in Q4 2014 to 3.4% in Q1 2015. However, rental growth in prime non-CBD locations where available space is often numerous has surged from 3.4% at the end of last year to 5.8% yoy in Q1 2015. Non-CBD locations that have benefited from rising demand exhibiting double digit prime rental growth include Vienna, Paris (La Defense) and Berlin at 24.4%, 17.8% and 12.2% respectively.

Office take-up in Q1 2015 across the survey area was on par with the same period last year, the firm finds, but down 20% compared to Q4 2014 which was a particularly strong quarter. The overall figures hide significant difference amongst cities. London City recorded an increase in take-up of 56% compared to Q1 2014 with record-breaking take up levels expected for 2015. Vienna, Madrid, Warsaw and Munich also recorded high increases at 38%, 30%, 29% and 20% respectively, as several large office floor spaces or buildings have been taken-up. At the opposite end of the spectrum Brussels, Paris, Berlin, Dublin and Cologne recorded double-digit drops in letting volumes at -30%, -26%, -24%, -21% and -12% respectively, which is mostly due to the limited availability of high specification and well located office space.

Eri continues: “Our expectations regarding demand in our survey area are positive. We predict stable or rising take-up in all our markets as the economic out look for Europe improves. We believe we will see a rise of at least 5% in total leasing volumes by the end of the year.”                                                                                                          

Source: Property Magazine