Sinking business confidence is having a detrimental effect on the European office market.
Jones Lang LaSalle, the property services firm, said in its second quarter European Office Property Clock that total take up of office space was 5.7 percent lower in the first half of the year compared to the first half of 2007.
Areas where job growth persists such as Central and Eastern Europe and Germany actually saw stronger demand for space during the second quarter, it said, but weakness pervades most other established markets. Take-up fell in Madrid by 37 percent, The Hague by 31 percent, Brussels 28 percent, London 25 percent, Dublin 21 percent, Stockholm 20 percent and Paris 19 percent.
The deteriorating economic outlook and declining business confidence has predictably had an effect on rents as well. Tenants have become more and more reluctant to pay high prime rents, said the firm. Its European Office Rental Index recorded a decrease in the second quarter for the first time since the first quarter of 2005, it said.
Just as predictably, vacancy rates in the two largest European markets, Paris and London, crept up slightly over the quarter by 5.2 percent and 4.1 percent respectively. Vacancy rates also rose significantly in Budapest and Moscow. Jones Lang LaSalle said, however, that increases of 10.4 percent and 6.1 percent in Budapest and Moscow were due to high completion volumes of office space.
It is not all bad news, though. According to the research, overall prime rents remain 3.9 percent higher than a year ago. Athens, Bucharest, Copenhagen, Kiev, Luxembourg, Milan, Moscow, St. Petersburg and Warsaw have seen significant gains. The City of London was among fallers, however. Prime rents have fallen there 3.9 percent since last year. In Brussels they have fallen 5 percent. The biggest decline in prime office rents over the second quarter has taken place in the West End of London, where a 4.4 percent drop is reported.