Occupier confidence to drive growth in office rents across EMEA in 2014

The occupier´s interest in Prague is concentrated mainly in the innercity.
In Prague there is increasing demand from especially successful technology companies to lease well located, good quality office space.
Aggregate EMEA office take-up rose 9.6% in the fourth quarter of 2013 (Q4).
Central London stand out performer with 39% year-on-year (y-o-y) take-up growth.
Dublin and Madrid post strong y-o-y increases.
Milan exceeds 100,000 sq m take-up in Q4 for the first time since 2011.
Warsaw records highest ever annual office take-up at 457,000 sq m.

Returning occupier confidence and improving office take-up will drive rental growth across EMEA in 2014, according to new research by CBRE, the global real estate advisor.

CBRE’s analysis shows that aggregate office take-up across Europe increased by 9.6% in Q4 of 2013, as improving economic sentiment in a number of European markets alleviated occupier caution. Take-up in Central London totaled 365,000 sq m in Q4, representing a 9% increase quarter-on-quarter, capping a 39% rise year-on-year. The increase in leasing activity led the City of London market to experience its first rental growth since 2010, with prime rents increasing by 4.5% in Q4.

There was also a marked improvement in Dublin and Madrid, two of the markets most severely affected by the Eurozone debt crisis. In Dublin, take-up increased by 47% in Q4, and 24% year-on-year, buoyed in large part by demand from the Technology, Media and Telecommunications sector. As a result, prime office rents in Dublin increased significantly, with a 17% rise recorded in Q4, and 27% over the course of 2013. In Madrid, a strong recovery in demand is evident, with take-up in Q4 more than double that in Q3, and take-up in 2013 120% greater than that recorded in 2012. In CEE, Warsaw recorded its highest ever annual take-up at 457,000 sq m with demand focused on the city centre and surrounding areas, while Moscow saw annual take-up increase by 4% on 2012.

Typically, the Prague office market follows overall European office market trends. Although developments and sentiment in key European markets are uneven, CBRE Czech Republic see an overall positive picture with occupier confidence returning resulting in increased take-up levels. As a result, rents have increased in a number of markets. Furthermore, in a number of markets the technology, media and telecommunications sector is driving occupier demand and central locations are favoured over outercity locations.

Bert Hesselink, Operation Director, CBRE Czech Republic, said:
“We expect the above mentioned trends to be witnessed in the Prague office market during the course of 2014 as well with the exception of increasing rents. Compared to 2013 when office demand came from a wide range of business sectors, we currently witness increasing demand from especially successful technology companies to lease well located, good quality office space. A clear example already in 2014 is Avast having pre-leased circa 11,000 sq m from Immorent at Enterprise in Prague 4 – Pankrac and we expect more similar, albeit smaller, deals to be closed this year.”

While CBRE forecasts a recovery across EMEA’s key office markets, the variable pace of economic recovery means growth in prime rents and take-up will be uneven. CBRE reports that over the course of 2013 prime rents in a number of markets reached a trough from which they will increase in 2014. These include Milan and Madrid, where take-up in both markets exceeded 100,000 sq m in Q4, one of the highest levels recorded in recent years. A buoyant manufacturing and energy sector in Milan accounted for 32% of such take-up in Q4, in line with the volume recorded over the full year. Meanwhile, a handful of office markets remain subdued as a result of ongoing economic uncertainty. For example, take-up in Paris declined 16% in Q4 quarter on quarter, leaving annual take-up in the city at the lowest level for ten years, yet rents have remained relatively stable declining less than 4% over that period.

Richard Holberton, Head of EMEA Research, CBRE, said:
“The overall picture is a positive one, with the economic uncertainty that constrained occupiers for the past two years beginning to dissipate evidenced by increased corporate confidence to lease and acquire space. This has resulted in increased take-up levels putting upward pressure on rents in a number of markets. While we expect more widespread rental growth across EMEA in 2014, the recovery will be uneven. Some markets are just entering the recovery phase, while others – including Central London - are experiencing rapid growth with others edging towards plateau.”

Mark Caskey, Head of Global Corporate Services, EMEA said:
“The improving economic outlook has significant implications for corporate occupiers. On the one hand it means that corporates can begin to implement expansion plans that have largely been on hold over the past few years, but equally, for those with a large footprint across EMEA rising rental values increases the need to manage costs. Many occupiers have ‘locked in’ rents at the bottom of the cycle and we would expect many more to do the same over the course of this year.”