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CBRE Global Research and Consulting
EMEA Office
MarketView
EMEA OFFICE MARKETS SET FOR IMPROVEMENT IN 2014
AFTER POSITIVE FINISH TO THE YEAR
Quick Stats
Hot Topics
Occupier confidence improving but widespread
pick-up in demand not yet materialising in most markets.
Prime rents in majority of markets have
stabilised. Growth recorded in some markets and more widespread improvements expected in 2014.
Overall vacancy rate increases slightly as
speculative schemes in core markets complete.
Aggregate European office take-up rose by 9.6% in Q4 on the low level recorded in the previous quarter. The improvement in demand was not sufficient to prevent annual take-up in 2013 falling marginally to the lowest level since 2009. However, there were signs of improved economic stability filtering through into greater occupier confidence. The stand-out performer was Central London where annual take-up rose by 39% on the previous year. In addition, some of the markets worst affected by the eurozone crisis such as Madrid and Dublin posted strong Q4 take-up and year-on-year increases.
The EU-27 vacancy rate increased by 0.11 percentage points (pp) in Q4 as some speculative schemes completed in a few core markets. Some of the sharpest increases were recorded in Paris, Moscow and Warsaw. Although the overall vacancy rate in many markets remains high, there is a marked disparity in terms of the quality and location of the available space – high grade buildings in central areas are generally in short supply.
Over the course of 2013 prime rents in a number of the markets on the downward curve of the cycle reached a trough, and only a small number recorded further decline in Q4. Some growth continued to be recorded in the stronger performing markets such as Dublin, Vienna and Munich. A strong recovery in demand in the London City market resulted in the first rental growth since 2010. Further economic improvements and hence occupier demand is expected to result in more widespread rental growth in 2014. Aggregate completion levels in 2013 increased (by 23%) from the cyclical low recorded the previous year, driven by some large speculative completions in a few core western Europe and CEE markets. Completion levels are forecast to increase again in 2014, but will remain focused in these core markets. However the pipeline for 2015 looks set to fall back again, and although the improved economic outlook is likely to result in more schemes starting in 2014, many of these will not complete until 2016 and beyond.
Q4 2013
Source: CBRE Chart 1: EMEA Prime Office Rent Cycle, Q4 2013
Change
from Q3 13 Q4 12
Rent
Yield
© 2014, CBRE Ltd
EMEA CAPITAL VALUE
1.9%
EMEA PRIME YIELD
Q4 20 13 EM EA Of fic e | M a rket V iew 2 OFFICE RENTS
EMEA prime office rents in 2013 followed a similar pattern to the previous year – some rental growth in the stronger performing markets was offset by further marginal declines in some southern European and CEE markets. However, by the final quarter prime rents in the majority of markets at the bottom of the cycle had reached a trough and only a small number recorded further decline in Q4.
As has been the case throughout the year, prime rental growth in Q4 was recorded in a few of the stronger markets, and this caused the EMEA Prime Office Rent Index to rise by 0.5%. This small increase nonetheless represented the largest growth since 2011, and with many markets stabilizing in 2013 the outlook for rental growth in 2014 is expected to continue in a positive trajectory.
Reflecting a strong recovery in demand during the year London City recorded a 4.5% growth in Q4 to £57.50/sq ft/annum, the first increase since 2010. Steady growth was also recorded in Munich and Vienna, where rents have already exceeded their pre-recession level. The pace of rental recovery in Dublin accelerated, rising by 16.7% in the quarter leaving prime rents 27.4% higher than a year ago. A stronger economic outlook, improving demand levels and low levels of available high quality space are driving rental growth in these markets.
OFFICE TAKE-UP
Take-up in the final quarter of 2013 was the strongest of the year, increasing by 9.6% on the previous quarter. However, this was partly due to the subdued volume of take-up in Q3, and even with this improvement in demand annual take-up fell marginally (2%) below the level recorded in 2012. Despite growing evidence of economic stability, office leasing activity continued to be adversely impacted by occupier caution, reflected in a widespread preference for renegotiating existing leases rather than committing to a relocation. In some markets however, the improved economic outlook has filtered through into a pick-up in demand for office space. The stand-out performer by some margin was the Central London market, where take-up in the final quarter reached 365,000 sq m, an increase of 9% on the previous quarter and 29% above the long term average for the market. This left annual take-up at 1.3m sq m, 39% higher than the previous year. Also worthy of note is an improvement in demand in some of the markets hard-hit by the eurozone debt crisis, with Dublin and Madrid posting strong year-on-year increases whilst in Q4 Milan recorded the strongest quarterly take-up level since 2011. In CEE Warsaw recorded its highest ever annual take-up level, whilst Moscow saw annual take-up increase by 4% on 2012. But despite the positive indications, leasing activity in most major markets remained some way below the ten-year average. In particular, the Paris region recorded its lowest annual take-up for a decade. However, take-up in Paris and a number of other markets showed an improvement in the second half of the year and it is expected that increasing demand pressure stemming from further economic improvement will produce a more widespread growth in leasing activity in 2014.
Chart 2: EMEA Prime Office Rent Index
20 40 60 80 100 120 140 160 -15% -10% -5% 0% 5% 10% 15% 20% D ec-01 D ec-02 D ec-03 D ec-04 D ec-05 D ec-06 D ec-07 D ec-08 D ec-09 D ec-10 D ec-11 D ec-12 D ec-13 Ind ex Q 1 20 00 =1 00
% Change pa Nominal Terms Index
Table 1: EMEA Prime Office Rent Index
Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Index (Q1 2000 = 100) 132 132 132 132 133 Quarter-on-Quarter (% Change) 0.0 0.3 -0.1 -0.2 0.5 Year-on-Year (% Change) -0.2 -0.1 -0.1 -0.2 0.6
Chart 3: Aggregate Office take-up (000’s SqM)
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 Q 4 20 01 Q 2 20 02 Q 4 20 02 Q 2 20 03 Q 4 20 03 Q 2 20 04 Q 4 20 04 Q 2 20 05 Q 4 20 05 Q 2 20 06 Q 4 20 06 Q 2 20 07 Q 4 20 07 Q 2 20 08 Q 4 20 08 Q 2 20 09 Q 4 20 09 Q 2 20 10 Q 4 20 10 Q 2 20 11 Q 4 20 11 Q 2 20 12 Q 4 20 12 Q 2 20 13 Q 4 20 13
Western Europe CEE
Table 2: Office take-up (000’s SqM)
Q2 2013 Q3 2013 Q4 2013 Q-on-Q (%) Y-on-Y (%) Brussels 108 62 89 43 -26 Paris 455 444 512 15 -16 Frankfurt 133 117 127 8 -18 Dublin 28 42 61 47 24 Milan 45 53 104 97 93 Moscow 335 292 229 -21 -18 Madrid 51 48 121 155 120 London 323 334 365 9 37 © 2014, CBRE Ltd
3 Q4 20 13 EM EA Of fic e | M a rket V iew 3 OFFICE VACANCY
After remaining effectively flat since 2010, the EU-27 vacancy rate has recorded two quarters of notable growth in 2013 to leave the vacancy rate 0.27 pp higher than at the end of 2012. Following an increase of 0.11 pp in Q4 the vacancy rate stood at a new peak of 10.6%.
The growth in the overall vacancy rate is largely attributable to some major speculative schemes completing in a few core western Europe and CEE markets during the year. In Paris a number of major tower completions in the La Defense district contributed to the overall Paris vacancy rate increasing by 0.58 pp over the year to stand at a 7.1%, the highest level recorded in the market since 1997. In CEE some major completions in Moscow and Warsaw contributed to the vacancy rate increasing by 1.3 and 1.6 pp respectively over the course of the year.
Elsewhere, vacancy rate fluctuations have generally been driven by occupier activity. The improvement in economic sentiment appears to be slowing, or even reversing the growth in vacancy in southern European markets such as Madrid and Barcelona, whilst in Dublin a strong recovery in demand produced a sharp reduction in the vacancy rate in 2013.
Although vacancy rates in a number of key markets such as Amsterdam, Frankfurt and Madrid remain above 15%, there is substantial disparity in the geography and quality of the available space. Following several years of very low speculative completions, the proportion of available space which is comprised of high quality centrally located buildings is now minimal. In Amsterdam for example, the vacancy rate in the Zuidas (CBD) has been declining in recent quarters to 6.8% whilst the overall vacancy rate has been increasing to 16.7% as peripheral occupiers have released surplus space onto the market, or relocated to more central buildings.
OFFICE DEVELOPMENT PIPELINE
Aggregate completion levels in both CEE and western Europe picked up in 2013 by 23% from the cyclical low recorded the previous year. However this rise in completions was almost exclusively driven by an increase in development activity in a few key markets – namely Paris and London in western Europe and Moscow, St Petersburg and Warsaw in CEE.
Completions levels are set to increase in 2014, but again this will be largely driven by an upturn in development in the core markets. Elsewhere, completion levels will remain well below trend and of the space which is due to complete, a high proportion will be pre-let. This trend appears set to continue into 2015, and even in the core markets completion levels are currently forecast to drop back quite significantly. This is largely due to the low number of schemes which were started during the height of the eurozone crisis in H2 2011 and 2012.
Given the improving economic sentiment it is likely more projects will move forward in 2014. However, an air of caution amongst developers is likely to persist for some time, whilst outside of the core markets finance will continue to be hard to obtain for schemes without a significant pre-let.
Chart 4: EU-27 Vacancy Rate
Table 3: Office Vacancy Rate (%)
Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Paris 6.4 6.5 6.6 6.8 7.1 Frankfurt 15.4 14.7 15.0 15.0 15.3 Dublin 21.4 18.0 17.2 16.4 15.3 Milan 11.6 12.1 12.2 12.0 12.2 Amsterdam 15.7 16.2 16.2 16.2 16.7 Moscow 10.7 12.0 11.7 11.3 12.0 Warsaw 8.8 9.8 10.5 10.9 11.8 Madrid 16.3 16.8 17.2 17.1 17.2 London 5.3 5.4 5.3 5.2 4.7
Chart 5: Vacant Space + 2-year Pipeline as % of Stock 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 St P et er sb ur g W ar saw Pr ag ue Bu dape st Ma dr id Fr an kf ur t Am st er dam Bar ce lo na D ub lin Br us se ls Mi lan D us se ldo rf Be rli n C ope nh age n Lo ndo n C ity Mu ni ch H am bu rg Par is Lyo n Vi en na Lo ndo n C en tral Ma rs ei lle Lille Lo ndo n W E Lo ndo n W E %
Development Pipeline to end 2015 Current Vacancy Rate
Table 4: Development Pipeline (000’s SqM)
2014 2015 Brussels 215 143 Paris 897 870 Frankfurt 286 152 Milan 123 75 Amsterdam 50 21 Moscow 1,415 n/a St Petersburg 338 244 Madrid 137 167 London 2 4 6 8 10 12 -60 -40 -20 0 20 40 60 80 100 D ec-02 D ec-03 D ec-04 D ec-05 D ec-06 D ec-07 D ec-08 D ec-09 D ec-10 D ec-11 D ec-12 D ec-13
4 Q4 20 13 EM EA Of fic e | M a rket V iew 4
KEY INDICATORS
€ / SqM / Last 3 Last 12 Annum Months (%) Months (%)Austria Vienna €25.25 per sq m pm 303.00 1.00 2.02 13.48 4.75
Belgium Brussels €285 per sq m pa 285.00 0.00 0.00 7.55 6
Croatia Zagreb €15 per sq m pm 180.00 0.00 0.00 0.00 8.3
Czech Republic Prague €20 per sq m pm 240.00 0.00 -4.76 0.00 6.25
Denmark Copenhagen DK1675 per sq m pa 224.50 0.00 -1.47 0.00 5
Finland Helsinki €396 per sq m pa 396.00 2.59 3.53 24.53 5.2
France Lyon €300 per sq m pa 300.00 0.00 5.26 30.43 5.7
France Marseille €270 per sq m pa 270.00 0.00 0.00 8.00 6
France Paris €800 per sq m pa 800.00 0.00 -3.61 11.11 4.25
Germany Berlin €22.5 per sq m pm 270.00 0.00 2.27 12.50 4.75
Germany Frankfurt €38 per sq m pm 456.00 0.00 0.00 0.00 4.7
Germany Hamburg €24 per sq m pm 288.00 0.00 0.00 6.67 4.65
Germany Munich €32.5 per sq m pm 390.00 1.56 3.17 10.17 4.55
Greece Athens €23 per sq m pm 276.00 0.00 0.00 0.00 8
Hungary Budapest €20 per sq m pm 240.00 0.00 0.00 0.00 7.5
Ireland Dublin €377 per sq m pa 377.00 16.72 27.36 27.36 5.75
Israel Tel Aviv ILS108 per sq m pm 261.34 -1.82 -1.82 13.68 8
Italy Milan €480 per sq m pa 480.00 0.00 -5.88 0.00 6
Italy Rome €400 per sq m pa 400.00 0.00 -2.44 0.00 6.5
Netherlands Amsterdam €340 per sq m pa 340.00 0.00 0.00 3.03 5.45
Netherlands Rotterdam €225 per sq m pa 225.00 2.27 7.14 15.38 5.7
Norway Oslo NOK3900 per sq m pa 516.98 0.00 5.41 30.00 5.3
Poland Warsaw €26 per sq m pm 312.00 0.00 -3.70 13.04 6
Portugal Lisbon €18.5 per sq m pm 222.00 0.00 0.00 0.00 7.5
Romania Bucharest €18 per sq m pm 216.00 0.00 -2.70 0.00 8.25
Russia Moscow $1200 per sq m pa 897.06 0.00 0.00 41.18 8.5
Russia St Petersburg $800 per sq m pa 598.04 0.00 0.00 6.67 11
Serbia Belgrade €15 per sq m pm 180.00 0.00 0.00 3.45 9.5
Slovak Republic Bratislava €16 per sq m pm 192.00 0.00 0.00 0.00 7.25
Spain Barcelona €17.75 per sq m pm 213.00 0.00 -1.39 0.00 6.25
Spain Madrid €24.5 per sq m pm 294.00 0.00 -2.97 0.00 6
Sweden Stockholm SEK4400 per sq m pa 502.25 0.00 0.00 10.00 4.5
Switzerland Geneva CHF950 per sq m pa 790.99 -2.56 -5.00 15.85 4
Switzerland Zurich CHF850 per sq m pa 707.73 0.00 0.00 0.00 3.2
Turkey Istanbul $45 per sq m pm 403.68 0.00 4.65 12.50 7.25
UAE Dubai AED280 per sq ft pa 646.56 0.00 0.00 0.00 7
UK Birmingham £28.5 per sq ft pa 379.19 0.00 0.00 5.56 5.75
UK Bristol £27.5 per sq ft pa 365.89 0.00 0.00 5.77 6.5
UK Edinburgh £28.5 per sq ft pa 379.19 1.79 5.56 5.56 6
UK Glasgow £27 per sq ft pa 359.24 0.00 0.00 0.00 6
UK London City £57.5 per sq ft pa 765.04 4.55 4.55 36.90 4.5
UK London WE £100 per sq ft pa 1330.50 0.00 8.11 25.00 3.75
UK Manchester £30 per sq ft pa 399.15 0.00 0.00 5.26 5.75
Country City Prime Office Rent (Local Measure)
Change from Trough*
(%) Prime Yield (%)
* Figures indicate the degree of change from the lowest rent recorded since 2009 to the current level
5 Q4 20 13 EM EA Of fic e | M a rket V iew 5 Market Summaries
multimodal transport hub and sufficient levels of facilities. Market activity has shifted towards the TMT sector, whilst the public sector and traditional F&BS firms remain in a consolidation phase, with many companies. Improving economic sentiment is yet to translate into sufficient occupier confidence to boost demand levels in Brussels. Lease renewals and space contractions continue to contribute to low tenant demand, particularly within the corporate sector. When companies have relocated the focus has been on upgrading to more space efficient buildings where they can implement modern workplace strategies and reduce their floorspace occupation.
The Dublin market continued in a positive trajectory in Q4, with take-up increasing by nearly 50% on the previous quarter. A number of large occupiers, predominantly from the ICT and life sciences sector are continuing to see significant expansion. Availability of high quality vacant space in central areas, where demand is focused, has been sharply declining. This has resulted in rapid rental growth in the prime segment of the market, increasing by 16.7% in Q4, leaving prime rents 27.4% higher than a year ago.
Demand in Frankfurt was relatively robust in the final quarter of the year, representing an 8% increase on the previous quarter but was 18% down on Q4 2012. As was the case throughout 2013, there continued to be an absence of larger transactions and just one deal over 10,000 sq m was signed in Q4, with larger occupiers tending to renew existing leases partly due to a shortage of suitable alternative buildings on the market. Demand for office space in Central London saw a rapid recovery in 2013, culminating in take-up of 365,000 sq m in the final quarter, an increase of 9% on the previous quarter and 29% higher than the 10-year average. A wave of new office completions will come to the market in 2014, however much of this space has been leased while under construction, and with completion levels for 2015 forecast to fall back sharply, there is expected to be strong tenant competition for the best buildings for the foreseeable future.
Take-up in Lisbon in Q4 reached 33,300 sq m, the highest level of the year and a 75% increase on Q3. Despite the improvement in the final quarter, annual take-up fell by a quarter on the previous year, to the lowest level in 15 years. The outlook for 2014 is a little more positive however, and owing to the low cost of real estate in Lisbon and the availability of a qualified and comparatively cheap workforce the market is expected to continue to attract BPO centres.
Although cost reduction continues to be a key driver of corporate activity in Amsterdam, companies continue to show a preference for buildings in well-connected areas with high levels of amenities. This includes the CBD and inner city areas, but also suburban locations which have a
Take-up in Madrid rose sharply in Q4, exceeding 100,000 sq m for only the second time since 2009. Although this was largely due to one major transaction, there are positive indicators which suggest the market has now reached a trough, and appears set for a steady recovery in 2014. Prime rents have stabilised and if the recovery continues it is expected rents will gradually rise from this level from H2 2014 onwards.
For the first time since 2011, take-up in Milan exceeded 100,000 sq m due to a number of large pre-let transactions completing. Quality and efficiency improvements, alongside cost cutting are the main drivers of corporate demand. The manufacturing and energy sectors remained the most dynamic in Q4, with 32% of quarterly take-up, in line with the volume recorded over the full year.
There is just 36,000 sq m of available space in Munich city centre and only a handful of buildings which can offer more than 1,000 sq m on one floor. This will continue to place upward pressure on prime rents, which increased by 1.6% in Q4. Although annual demand fell back on the 2012 level, it remains robust within a European context and is supported by the city’s broad occupier base – in 2013 consultants accounted for the highest proportion of take-up, with just 13% of the total. Uncertainty in the French economy continued to impact the Paris office market during the second half of 2013. The environment incited business leaders to take as few decisions as possible and postpone plans to move. Landlords made a considerable effort to stop tenants moving out of their buildings, consequently the
renegotiation of existing leases was a prominent feature. Rent free incentives remain high and in oversupplied locations can reach three months per year of the lease, although are typically lower in more central areas (1.5-2 months).
Demand for office space in Vienna continued to be robust in Q4, with take-up reaching 85,000 sq m, the same volume recorded in the previous quarter. The public and semi-public sector continued to be the main driver of demand. The vacancy rate remains low, and with a limited amount of new space due to complete in 2014 steady upward pressure on prime rents in the CBD is expected to continue. For lower quality space rents are expected to remain stable.
an absence of deals in the more expensive Harbour North and Inner Harbour locations. With a number of completions due in H1 2014, and an already high vacancy rate of 11%, downward pressure on rents is likely to continue.
© 2014, CBRE Ltd
Following on from two quarters of very weak demand, office take-up in Copenhagen improved in the final quarter but was well below historic levels for this time of the year, and this left annual take-up in 2013 significantly below previous years. The average rent has declined over 2013, due to
6 Q4 20 13 EM EA Of fic e | M a rket V iew 6
Prime rents have increased steadily in Helsinki CBD during 2013, although in non-central areas there has been slight downward pressure on rents. Market conditions generally favour the tenants, and landlords are willing to give rent free periods as well as a contribution to fit out costs. These vary on a submarket basis – in the CBD a typical rent free is one month per year of the lease, whilst in secondary locations incentives can be up to 20% of the lease commitment. A growing number of occupiers in Stockholm are focusing on space utilization and are therefore implementing mobile workplace strategies to reduce their space utilization. As a result, demand is focused on modern, space efficient buildings that can accommodate this, which is forcing owners of inefficient premises in less attractive locations to consider alternative uses for their buildings.
opportunity to relocate to high quality buildings, which can be transacted at good rates. With low levels of completions forecast in 2014, the market may edge back in favour of the landlords by the end of the year.
After a positive start to the year, ensuing political instability in Kyiv coupled with negative trends in the economy resulted in a fall in demand in Q4. Due to a high level of office development the vacancy rate has reached 27.5%, and this is placing tenants in a strong negotiating position, enabling them to upgrade their space without increasing rental costs. Although the prime rent remained flat, there has been a decrease in secondary rents of between 10-20%. In 2013 completed deals in the Grade A segment in Moscow fell to the lowest level since 2009, comprising just 23% of the total take-up volume. This is reflective of deteriorating economic indicators in Russia affecting the behavior of international companies, who are the primary occupiers of Grade A space. Activity from domestic
companies was focused in lower grade space, outside of the CBD, where the most active sectors were Oil and Gas and T&T companies.
The Prague market recorded the highest ever quarterly proportion of renegotiations in Q4 at 64% of TLA, demonstrating the preference of cost-saving tenants to remain in their existing buildings. The market remains in the tenants favour and this is reflected in incentive levels, with landlords typically giving 1-2 months rent free per year, and contributing €100-250 per sq m towards fit-out costs, although in some districts the levels are much higher.
Demand for office space in Warsaw has continued to be very strong in 2013, with take-up reaching the highest level recorded at 457,000 sq m. Demand has been focused in the City Centre and surroundings as well as the area close to the airport and along the western part of the second metro line. A large development pipeline is providing an increasing number of high quality building options, including some new well connected peripheral schemes which are now competing with the CBD for tenants.
with a minimal increase to current occupational costs. Continued improvement in Governmental regulations is expected to encourage more foreign business to the region. Companies in Tel Aviv are continuing to move away from the CBD to cheaper peripheral markets where there is a good supply of modern buildings. The high tech sector remains the most active, through both expansion activity and from consolidation, which is primarily driven by acquisitions of smaller firms by global corporates. There is strong competition between new developments for tenants, which is placing them in a strong negotiating position.
Q4 2013 represented the culmination of a year exceeding expectations in terms of total leasing activity in Bucharest – with more than 86,000 sq m transacted this quarter making it the strongest in recent years. Encouragingly, the majority of this (59%) was comprised of take-up of available space, with companies taking the
© 2014, CBRE Ltd
The Dubai market has recently experienced rising demand with new live requirements reflecting the improving global economy, overall business confidence and positive sentiment from Dubai Expo 2020. Occupiers are focusing on relocations to more efficient, superior buildings that are centrally located and easily accessible, but
7 Q4 20 13 EM EA Of fic e | M a rket V iew 7
CONTACTS
For more information about this Regional MarketView, please contact:
EMEA Research Richard Holberton Director EMEA Research CBRE Henrietta House Henrietta Place London W1G 0NB t: +44 20 7182 3348 e: [email protected] Zachary Gauge Researcher EMEA Research CBRE Henrietta House Henrietta Place London W1G 0NB t: +44 20 7182 2762 e: [email protected]
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This report was prepared by the CBRE EMEA Research Team which forms part of CBRE Global Research and Consulting – a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe.
Disclaimer
CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.
