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Ray of Sunshine on the Horizon for EMEA’s Office Markets?

Jones Lang LaSalle Q3 2010 Occupier Conditions Research

London, 13th September 2010 – Jones Lang LaSalle's Q3 EMEA Occupier Conditions research reveals that markets across EMEA are witnessing significant upturns in demand as occupiers seek to transact whilst market conditions are favourable.  Vincent Lottefier, CEO of Jones Lang LaSalle’s EMEA Corporate Solutions team, said: “The key drivers of these deals which will persist for the remainder of 2010 - include the desire to consolidate, a need to churn the occupied portfolio and/or upgrade the quality of occupier space. 

Dr Lee Elliott, Head of EMEA Occupier Research at Jones Lang LaSalle, added: “The current market does however present risks for corporate occupiers. There is a growing divergence between prime and secondary markets and for those occupiers seeking quality space the options are becoming more limited.  Constrained development pipelines will mean that an imbalance between supply and demand is imminent in many markets thus placing pressure on real estate decision timing as the window of opportunity closes.”

Jones Lang LaSalle’s research also highlights that developers still face an absence of speculative development finance and remain hesitant.  As many projects have been postponed during the credit crunch, a shortage of new supply can be expected as early as 2011 in some markets.  Conversely, the map of second hand space is likely to increase further in some markets during 2010 as occupiers seek to rationalise or even upgrade.  As a result, Grade A supply is likely to see successive declines but the overall vacancy rate will remain above average until 2014.  The rental differential between prime and secondary is therefore expected to widen in most locations over the short to medium term.

Prime rental levels stabilised in the majority of European markets over Q2 and the Office index, based on the weighted performance of 24 markets, increased by 2.6 quarter on quarter, building upon the growth seen during Q1 and showing the first positive growth (+2.1%) on an annual level since Q3 2008.  The biggest rise in rents this quarter was seen in London’s West End (13.3%), Paris (7.1%), London City (5.3%) and Dusseldorf (2.3%).  Quarterly rental falls were recorded in Dublin (-5.3%, Frankfurt (-2.9%), Madrid (-2.6%), Barcelona (-2.4%) and Hamburg (-2.2%).

Vincent Lottefier concluded: “Incentives offered by landlords also stabilised with some markets seeing incentives reducing such as London City, London West End, Bucharest and Hamburg.”