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Aggregate European office take-up fell by 5.2% on the previous quarter, and remains well below pre-recession levels. Demand remains very uneven, with some cities namely London, Moscow and the five main German markets continuing to witness robust levels of demand. Conversely, take-up in other markets, such as Madrid and Paris, fell to the lowest quarterly level in recent years.
The EU-27 vacancy rate was effectively flat in the quarter. Some new completions have come through to boost prime stock levels in a few core markets, but in most cities the quality of available space has continued to deteriorate as occupiers have vacated poor quality space to upgrade to more modern accommodation.
Until there is a more widespread recovery in demand, prime office rents are likely to continue to stagnate in the majority of European markets. As was the case in the first two quarters of the year, some rental growth in a few of the best performing markets was offset by further marginal declines in weaker markets.
Some major speculative office completions will continue to come through to the market in the final quarter of 2013 and into 2014, in a few core markets. However, early forecasts suggest the volume of completions will dip back again in 2015, as very few schemes were started at the height of the eurozone crisis.
The aggregate take-up level improved on the very weak first quarter due to a strong pick-up in activity in some of the core markets, where positive recent economic news appears to have instilled sufficient confidence in occupiers to reignite the market. Elsewhere however, occupiers continue to demonstrate a preference for renewing and renegotiating existing leases – a trend which appears likely to continue across much of Europe until a broader and sustained return to economic growth is achieved.
The EU-27 vacancy rate recorded a notable increase in the second quarter of the year, after remaining effectively flat since 2010, as the first buildings of a new wave of speculative office schemes completed. These developments were almost exclusively located in a few core cities – elsewhere vacancy increases continued to be driven by the release of second hand space by occupiers.
Although some cities recorded prime rental growth during the quarter, a drop in the prime rent in Paris, in addition to some markets at the bottom of the cycle recording further marginal declines, resulted in the EMEA Prime Office Rent Index declining slightly (0.1%) over the quarter. Prime rents in most of the markets at the top of the cycle remained stable during the quarter. However an improvement in demand levels could trigger a more widespread return to rental growth from 2014 onwards.
Some major speculative office completions will continue to come through to the market in the second half of 2013 and into 2014. However, as was the case in the first half of this year, these completions will continue to be heavily focused in a few core markets. Outside of these markets, completions levels will remain low and heavily driven by pre-let activity.
European retail investment grew to €8.2 billion in Q3 2013 - a quarterly increase of 10.2%. A broadening of investor demand was the key theme in the market – backed by recent economic improvements, with relative pricing and lack of core product being the main push factors.
Southern Europe made it back on to the investor map. The latest results for Italy and Spain combined show a three-fold increase on the previous quarter, each reporting around €600 million in retail investment in Q3. Growing investor demand and increased deal flow is certain to have an impact on pricing in the region.
Western Europe, constrained by limited availability of core product, saw an investor shift towards second-tier markets and value-add, secondary product.
H1 2013 saw €15.0 billion in retail investment across Europe. This is 17% up on the same period last year, with the UK and Germany taking the largest shares
Institutional capital is becoming very influential in retail, in line with the rest of the European commercial real estate investment market. Institutional buyers’ share of the market grew to 21% in H1 2013.
North American investors were the most active net buyers of European retail in H1 2013 - with €1.6 billion net, heavily focusing their acquisitions on Russia and the UK.
Energy demand is increasingly shifting from OECD to non-OECD countries, meanwhile technological advances and new innovations are unlocking new sources of energy, creating new markets as well as prolonging the life of existing energy fields. This has the potential to impact directly on the operational decisions of firms in the energy industry
Shifts in energy demand, supply and price impacts on the real estate markets in cities where, due to proximity to oil and gas fields, a high proportion of the occupier base work in the industry; energy-dependent markets
The ‘energy-dependent markets’ are seeing rental growth that exceeds growth in both the CBRE Global Rent Index, and rental growth among other more established office markets, such as those which are considered financial centres
In the more mature office markets, rents are generally higher, but growth lower, and conversely, in the emerging markets, rents are lower but growth rates higher.