European property market activity, prime rents stall in H1

Related images

  • European property market activity, prime rents stall in H1

EUROPE - Moscow provided one of the few exceptions to an otherwise largely static first half across European property markets, according to a report published by CBRE.

Occupier uncertainty in the European office market pushed take-up down 6% across European office markets in the first half of the year compared with H1 2010, and 12% compared with the second half of last year. 

Despite a 7% quarter-on-quarter increase in Q2, the continuing broadly bearish outlook characterised by muted activity and near-static prime rents in many markets contrasted with a 34% increase in market activity and a 10% increase in prime rents in the Russian capital.

Although prime rents stalled in most Western European markets, they increased in Central and Eastern European markets and Scandinavia. Oslo prime rents increased 10%.

In contrast, prime rents declined 15.5% in Athens during the quarter, although the rate of decline flattened somewhat in Dublin and Madrid.

CBRE research director Richard Holberton said: "Further deterioration in the sovereign debt position is one of the things that could dent the rental growth outlook.

"Some of the Q2 data, as well as sentiment indicators, have pointed toward a weaker short-term outlook, which would clearly delay resumption of rental growth."

More downside signals likely to affect the rental outlook have emerged in recent weeks, including euro-zone GDP growth of more 0.2%, compared with 0.8% in Q1 and softened manufacturing output.

Vacancy rates came down significantly in most cities in Q2 as a result of speculative construction drying up.

London is one of the few European capitals with a significant supply pipeline over the next two years, but it also recorded one of the lowest vacancy rates.

Holberton pointed out that development activity had come to a halt earlier and more markedly in London than in other European markets during credit crunch, and the lack of additional development space had contributed to its low vacancy rate. 

Surge in demand in the latter part of last year, which abated in the first half of this year, was also a factor.

Cautious occupier sentiment as a result of the sovereign debt crisis and a halting European recovery have encouraged many occupiers to roll over existing leases or opt for temporary expansion rather than upgrade.

Holberton said: "The outlook for secondary space is generally worse in terms of occupier appeal and rental prospects, which raises the risk of obsolescence for poor-quality vacant space in unpopular districts.

"Many occupiers have used the period of rental weakness to upgrade to better quality and often more centrally located space, so the focus of tenant demand, as well as investment activity, has been heavily on the prime end of the market."

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

Begin Your Search Now