However, with rents beginning to find a floor in a number of markets, this situation is highly dynamic and tenants’ advantage may be short-lived. While rents across EMEA are continuing to fall, the rate of decline is slowing.
The CB Richard Ellis EU-27 office rent index moved down just 1% in Q4 2009, taking the annual change to -9.2%. At individual market level, the rental pattern is very uneven. London led the EMEA region’s rental recovery at the end of 2009 and rents in the City of London rose by 3.5% in the fourth quarter (Q4). This partly reflects a shortage of space over 100,000sqft, which contrasts with a greater choice of units below 25,000sqft: effectively a two-tier market. A significant number of other markets, including Paris, Berlin and Stockholm, are now seeing the rate of rental decline slowing.
Matt Pullen, Head of EMEA Global Corporate Services, CBRE, said: "Cost-cutting, rationalisation and regearing remain the key drivers of tenant activity in a large number of office markets. Despite rental growth in London and stabilising rents across many other markets in EMEA, opportunities to negotiate more favourable terms still exist, although these may be short-lived so need to be acted upon quickly. Most markets across EMEA should see demand stabilise or improve in 2010."
Aggregate vacancy levels continue to rise but in many markets the rate of increase has slowed. This has been spurred by previous low levels of demand which restricted the scale of office development, and in some cases has prompted office conversions to hotel or residential use. Vacancy rates in major cities typically ended 2009 one or two percentage points above their end-2008 levels. However, some markets, including London and Milan, are now seeing vacancy rates start to fall, and the availability of large, high-specification buildings in core central areas remains very limited in many major cities. Demand is still fragile but showing some signs of strengthening: the second half of 2009 produced higher levels of leasing activity than the first, and Q4 was the most active quarter of the year in terms of office take-up.
Richard Holberton, Director of EMEA Research, CBRE, said: "Although positive signs of recovery were recorded in Paris and London, demand patterns are irregular across individual markets and European leasing activity was 30% lower in 2009 than in 2008. Improved leasing levels in Q4 2009 in markets such as Madrid however, often resulted from one-off factors, including a desire to complete deals before the year-end or as part of a drive to cut costs.
"Completion of new office developments will slow in 2010 and even more so in 2011 which will restrict the choice of new large units and revive pre-letting activity in some markets. The extent to which this outlook affects market balances will depend on the strength of demand recovery, but some EMEA office markets now look poorly placed to accommodate any demand surges in the next two years without pushing up rents."
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