Office rents in Europe fall

Jones Lang LaSalle's prime office rental index for western Europe fell by 0

Jones Lang LaSalle's prime office rental index for western Europe fell by 0.4 per cent in the first quarter of 2005, the third consecutive quarter of decline.

The annual growth rate fell slightly from 0.5 per cent in Q4 2004 to 0.4 per cent in Q1 2005.

The cities to register rental declines in the first quarter were Brussels (-3.4 per cent), London West End (-3.4 per cent) and The Hague (-2.4 per cent), although in London West End prime rents are re-adjusting after unusually strong prime rental growth in the core in 2004.

In contrast, rents rose in Lyon (4.7 per cent) and Madrid (1 per cent). Prime rental values in all other index cities, including Dublin, were unchanged.

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Nigel Roberts, head of European research at Jones Lang LaSalle, commented: "The economic growth drivers for Europe's office markets are positive but nevertheless are proving to be patchy across Europe with most countries expected to experience slower economic growth in 2005 than in 2004. Consensus Forecasts for the UK are 3.1 per cent in 2004 to 2.5 per cent in 2005; France 2.4 per cent to 1.9 per cent; Germany 1.6 per cent to 0.9 per cent; Poland 5.3 per cent to 4.4 per cent; Russia 7.1 per cent to 5.8 per cent).

"For many this means less than trend growth. With continued low interest rates, especially in the eurozone, leveraged investment continues to look attractive but with slower economic growth, a broadly based recovery in the rental markets may take longer to materialise."

European leasing volumes fell in the first quarter of 2005 in comparison to the previous quarter. Nevertheless, office take-up for the first three months was in line with the first quarter of 2004. In particular, the five major German cities saw Q1 take-up of office space 30 per cent above Q1 last year.

Frankfurt saw its highest level of quarterly take-up since 2003 and Berlin the highest since 2001, though market fundamentals are still weak in these cities. In central London (West End, City and Docklands) take-up in Q1 was 50 per cent down on the very high level seen in Q4 2004. Net absorption of office space is still weak across Europe, and therefore despite more robust leasing markets, vacancy rates have remained high in western Europe in Q1. The European average vacancy rate for the index cities increased slightly from 9.7 per cent in Q4 2004 to 9.8 per cent in Q1 2005.

While vacancy levels declined in Brussels, central London (West End, City and Docklands), Madrid, Paris, The Hague and Utrecht during Q1, all other index cities continued to register increased availability.

In Central and Eastern Europe, prime rents were stable in Budapest, Moscow and Prague in Q1, but fell by 4.8 per cent in Warsaw since the end of 2004.

As a result, the index of prime office rents for the region fell by 1.2 per cent in the quarter. The annual rate of rental growth has fallen from 3.7 per cent in Q4 to 1.1 per cent.

Central and Eastern Europe continues to attract high occupier demand; however, there was a moderation of activity in Q1, with leasing volumes 9 per cent below Q1 2004.