European office vacancies to exceed 10%

The latest research by Jones Lang LaSalle concludes that demand is expected to remain weak against a backdrop of 4m sq. m of office space due for completion this year. It comes as ING’s CIO Ian Whittock calls the bottom for UK property prices.

European office vacancy rates could top 10 percent by the end of the year, according to a Jones Lang LaSalle report.

The real estate services firm said in its Q2 2009 European Office Clock Report that leasing volumes increased 9 percent from the previous quarter to 2.1 million square feet, with take-up in Central and Eastern Europe rising 14 percent above the five-year average. Brussels, Madrid, and even financial services-heavy London picked up.

However, the report also goes on to suggest that despite these apparent rises in leasing activity, vacancy rates could move up from 9.3 percent overall to above 10 per cent by the end of the year. This is because there are 4 million square metres of space due for completion at a time when office demand is expected to remain weak.

“The overall European vacancy rate could exceed 10 percent by the year end”, said Chris Staveley, head of Jones Lang LaSalle’s cross border team. The index is based on 24 markets, and shows that headline rents are falling.

Moscow suffered the biggest fall with a 30 percent decline in rents, followed by Dublin, and Madrid. London experienced a year-on-year fall in prime rents of 32 percent and potentially has now reached the peak of rental decline. 

Staveley said despite early signs of improvements in economic and business confidence a significant proportion of occupiers across Europe were still reducing staff numbers and seeking to avoid the costs of relocation. “While some tenants are looking to take advantage of current market conditions and secure high quality space in better locations, overall office demand remains low across Europe,” he added.

The research comes on the same day that Ian Whittock, chief investment officer of ING Real Estate Investment Management, provided some cheer by calling the bottom of the UK real estate market in terms of yields.

In an opinion piece, he wrote: “For the first time in two years the price of property in the UK is rising again. Note I have used the word price to denote market bids rather than values since valuations have yet to reflect what is currently taking place in the market.”

He wrote that of 13 properties ING currently has under offer, seven were at prices above valuation, whilst three were on a par.  June quarter valuations saw an increasing number of properties either holding or improving their values.

He added: “Finally we find that when bidding for properties, whereas in Q1 we would probably have been alone in our bid now there are five or six other bidders.  There is quite a sharp difference in pricing when there are two bidders for each property rather than one bidder for every two properties.”