PROPERTY REPORT MAIN OFFICE MARKETS IN WESTERN EUROPE

Transcription

1 PROPERTY REPORT MAIN OFFICE MARKETS IN WESRN EUROPE

2 ARIB P PARI ARIB RI ARIBAS R REAL ARIBAS RE E ARI ARIBA AS REAL CONTACTS INRNATIONAL INVESTMENT GROUP Peter Roesler Tel.: peter.roesler@bnpparibas.com FRANCE Etienne Prongue 167 Quai de la Bataille de Stalingrad Issy-les-Moulineaux Cedex Tel.: etienne.prongue@bnpparibas.com GERMANY Mathieu Brummer Goetheplatz Frankfurt am Main Tel.: mathieu.brummer@bnpparibas.com UNID KINGDOM Andrew Cruickshank 5 Aldermanbury Square London EC2V 7BP Tel.: andrew.cruickshank@bnpparibas.com RESEARCH 167, quai de la Bataille de Stalingrad Issy-les-Moulineaux Cedex France Tel.: +33 () Christophe Pineau Head of International Research Tel.: +33 () christophe.pineau@bnpparibas.com Zsolt NENKOV Research analyst zsolt.nenkov@bnpparibas.com PROPERTY REPORT - MAIN OFFICE MARKETS IN WESRN EUROPE - OCTOBER 212 EXECUTIVE SUMMARY Office investment still able to grow With no improvement in economic activity, office take-up was significantly under last year s level on a rolling year basis. The low level of new supply helped to stabilise the vacancy rates and even pushed them down in German cities, therefore rents resisted the impetus for decline. Several large deals in core markets continued to support steady office investment growth. Economic outlook remains challenging in Western Europe again in 1.7% Weak labour market strongly impacts office demand further in market resilient supply remains limited Positive trend for office investment continues outperformed Madrid and Milan amongst office markets 2

3 ARIB P PARI ARIB RI ARIBAS R REAL ARIBAS RE E ARI ARIBA AS REAL MACROECONOMIC CONXT Recent monetary policy actions by the ECB have significantly reduced uncertainty in the European economy and paved the way for renewed confidence. But this is no panacea for the challenges facing many European economies. Tight fiscal policy action is an important part of the policy mix needed to meet the challenges. This however is likely to weigh on consumer spending and thus economic activity. Indeed, recent leading indicators point to further contraction in output in the Euro zone rebound in growth in Q3 (+1.%). All in all, we continue to believe that 212 overall. But 213 is likely to see the return of growth, albeit weak, (+.4%). Similarly, conditions in the labour markets remain considerably weak, high. However performances vary markedly between the different countries. In Spain (25.1%) and France (1.8%) recent months have seen and Belgium (7.4%) have seen stability, with the rate in Germany been in its unemployment rate during the summer. While further divergence is likely, we do not envisage significant improvements until mid 213. GDP and employment growth % * 13* * forecast Source: Eurostat, aribas Real Estate GDP growth Employment growth PROPERTY REPORT - MAIN OFFICE MARKETS IN WESRN EUROPE - OCTOBER 212 year basis to, take-up in the 9 Western European cities tracked weakened further, dropping by 1%. Central London and Central Paris slowed down the most, whilst German cities performed relatively Milan and Madrid remain the weakest markets as regards economic fundamentals. A slight contraction in the average vacancy rate was recorded in Q Currently, availability is either stable or decreasing in all cities except Central London where the delivery of London s tallest building, the Shard, resulted in a large amount of new supply this quarter. Thanks to the resilience in demand in Germany, the downward trend in immediate supply in German cities continued despite the higher level overall in Q3 with stabilisation achieved in Madrid but a drop in Milan. reached the highest level since Q2 28. However, there is obvious heterogeneity in trends within different markets. Central London and German cities were clearly driving the activity in Q3 and strong investor demand even led to slight yield compressions (Munich, Hamburg). Investment activity in Paris is holding up well with 2bp decrease in prime yield, unlike Madrid, Milan and Brussels. In Madrid and Milan, in a context of increased risk aversion, the lack of activity was reflected in higher prime office yields. Office take-up and supply Western European offices (9 cities) m 2 16, 14, 12, 1, 8, 6, 4, 2, * * Rolling Year Take-up Supply 13,755 5,86 3

4 ARIB P PARI ARIB RI ARIBAS R REAL ARIBAS RE E ARI ARIBA AS REAL THE DROP IN OFFICE DEMAND ACCELERAS The third quarter confirmed the weaker economic activity and the record high unemployment rate in Western Europe. In such a deteriorated environment, businesses have significantly reduced their demand for European cities reached 1% in compared to on a rolling year basis, thus accentuating even further a trend that started at the beginning of last year. In Central London, take-up fell by 19% in on a rolling year basis. Increasing demand from the TMT 1 sector helped the West-End to Central Paris, office take-up confirmed its slowdown on a rolling year basis to Q3 212 (-17%). This fallback in office demand concerned all submarkets year s very good performance, was penalised by the absence of large more resilient accounting for the largest transactions of the quarter. German office markets continue to resist particularly well and again achieve take-up levels mostly above the long term average. For instance, Munich secured its 1 Technology, Media and Telecommunications Take-up volumes in 212 m 2 1,4 1,2 1, m Central Central Paris London Submarket office take-up Q1 212 Munich Frankfurt Berlin Hamburg Brussels Q2 212 Madrid Milan Western La Défense West End City Docklands Crescent Paris London PROPERTY REPORT - MAIN OFFICE MARKETS IN WESRN EUROPE - OCTOBER 212 position as the most active office market, even growing by 7% on a rolling year basis to. Frankfurt witnessed slightly higher activity over the past four quarters as well (+3%). In the meantime, Hamburg slowed down further due to the absence of large transactions in 212 so far. In Milan, in response to economic recession and a continuous employment reduction, companies are regrouping activities and thus cutting down office space. Consequently, net absorption has been negative all along 212 and take-up fell by 15% on a rolling year basis in. In Madrid, occupier demand is dragged down by weak economic activity. up is expected to achieve the weakest annual result since the financial crisis. In Brussels, take-up fell back slightly in Q3 following a strong first half year boosted by public sector demand. Nevertheless, thanks to slightly improving market conditions, Brussels is amongst the very few Western European markets that are likely to achieve higher take-up level in 212 compared to last year. Rolling year take-up change vs office take-up m % -2 Munich Brussels Frankfurt Madrid Berlin Munich Frankfurt Hamburg Berlin Hamburg Milan Madrid Central Central Paris London Brussels Milan 4

5 ARIB P PARI ARIB RI ARIBAS R REAL ARIBAS RE E ARI ARIBA AS REAL started to fall again in : it represented 9.1% vs. 9.3% in Q2 212 and 9.4% reached a year ago. It is worth mentioning that this positive trend is only ensured by the significant drops recorded in German cities. rose to 2.4 years vs. 2.2 years last year which well illustrates the current slowdown in office demand. In Central London, the vacancy rate edged up slightly (6.8%) on the previous quarter but this is due essentially to the completion of the Shard City and the West-End received very little new supply in thus keeping their respective vacancy rates stable. The West-End remains particularly undersupplied but the situation should improve in when several completions are due. The vacancy rate was roughly stable in Central Paris over the past four quarters at 7.6%. The lowest as well in Q3 but at a significantly higher level compared to last year. almost one third of total construction works in the Paris market. PROPERTY REPORT - MAIN OFFICE MARKETS IN WESRN EUROPE - OCTOBER 212 SIGNIFICANT REDUCTIONS IN VACANT OFFICE SPACE IN GERMAN CITIES Vacancy rates 1, % Submarket office supply m 2 5 Berlin Hamburg Central Munich Central Brussels Milan Frankfurt Madrid London Paris Western La Défense West End City Docklands Crescent Paris London German cities have witnessed a sharp contraction in their vacancy European markets with 5.8% and 6.6% respectively. Another positive aspect is that despite the overall rise in office space under construction, only 4% of the pipeline for in the four largest cities is still available for letting. In Milan, with no deliveries this quarter, the overall Currently, given the high level of supply, construction works are slowing importance is given to refurbishments of older office buildings. The overall vacancy rate in Madrid remained above 14% for the second consecutive quarter and seems to be stabilised for now as no deliveries came onto the market. The picture is slightly more positive in the as demand proved to be more resilient over there. In Brussels, a very low level of completions combined with a slight improvement in office vacancy rates to their lowest level since the end of 28. Ratio of take-up to supply years Supply in ' m Central Central Munich Hamburg Berlin BrusselsFrankfurt Milan Madrid Paris London * Rolling Year Munich Frankfurt Hamburg Berlin Madrid * Brussels * Milan 5

6 ARIB P PARI ARIB RI ARIBAS R REAL ARIBAS RE E ARI ARIBA AS REAL PRIME RENT DROPS IN MILAN BUT STABILISES IN MADRID average rents are slightly higher compared to the previous quarter thanks to the ongoing reduction vacant office space. The prime rent in Central London remained stable in Q3. However, it could easily increase shortly given that particularly low supply in the West- End is maintaining rents under upward pressure. The average rent has already risen strongly since last year. In Central Paris, the average rent in still significantly under last year s level despite picking up in Q3. In Germany continued to rise at a fast pace in Berlin and was maintained at high levels elsewhere. Thanks to the continuous reduction in vacancy rates, Office prime rents /m²/year 1,8 1,6 1,4 1,2 1, 8 6 Average office rent /m²/year Central London Central Paris max London West End London City London Docklands Paris Milan Paris La Défense Western Crescent Madrid PROPERTY REPORT - MAIN OFFICE MARKETS IN WESRN EUROPE - OCTOBER 212 German cities are most likely to achieve rental growth in the following quarters. The prime rent in Milan recorded its first drop after almost two years of stability and remains under downward pressure as market dropping for over a year now. In, the current lack of new supply and somewhat higher rents in Madrid. However, the weak occupier demand and the very high vacancy rate are likely to maintain rents under downward pressure. In Brussels, given the steady improvement in occupier market conditions and thanks to the ongoing reduction in vacant office space, the prime already been increasing slightly since last year. Office prime rents /m²/year Average office rent /m²/year Milan Frankfurt Munich Madrid Hamburg Brussels Frankfurt Munich Hamburg Brussels Berlin Berlin max 6

7 ARIB P PARI ARIB RI ARIBAS R REAL ARIBAS RE E ARI ARIBA AS REAL The flight-to-quality behavior continues, resulting in an increase of 19% in office investment on a rolling year basis in compared to Q The activity across the various markets has become even more divergent: investors focus on core markets, shifting away significantly from the Southern markets. Central London, which accounts for almost half of total office investment in Western Europe, recorded another strong quarterly performance in Q3. London maintains its attractiveness thanks to lower risk aversion and better economic perspectives compared to the Euro area. Activity remained driven by the City where several large deals were recorded but continued rental growth is making the West-End attractive as well. Central Paris, despite a slowdown on the previous quarter, performed well rising by 24% driven by some large transactions. Strong investors 4.5%. In the meantime, the lack of prime office assets to buy continued The German office market offers the safest investment opportunities for buyers within the Euro area supported by a healthy letting market. Globally, activity was boosted by some large deals for instance in Munich PROPERTY REPORT - MAIN OFFICE MARKETS IN WESRN EUROPE - OCTOBER 212 SADY GROWTH IN OFFICE INVESTMENT VOLUME MAINTAINED Office investment volume breakdown share of 9 main markets billion % Other Western Europe Main markets (9 cities) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Rolling year investment change / Munich Madrid Berlin Central Central FrankfurtHamburg Brussels Milan Paris London and Berlin, where total investment volume on a rolling year basis significantly outpaced that of last year. The shortage of prime assets has somewhat limited investment in Hamburg and Frankfurt, but demand remains strong. Consequently, prime yields dropped slightly in Hamburg and Munich by 5 bp to reach 4.75% and 4.7% respectively. In Milan, weakening trends in the occupier market are discouraging investors and financing conditions requested are too high. Besides, given extensive risk aversion, current property yields are low for investors compared against government bond yields. In a market situation that is frozen, prime yields are estimated to have risen to 5.7% at the end of Q3. In Madrid, the lack of improvement on the occupier side kept investors, especially international buyers, away from the market. The very weak activity in 212 so far has finally led to an increase in prime yields after several quarters of stability. Currently, the prime yield is at 5.6% significantly above the average prime yield in Western Europe. In Brussels, office investment remained weak due mainly to the lack of suitable assets to buy for investors. Main office investment markets in Western Europe ( rolling year) Net office prime yields % 7% 4% 5% 3% 3.5 Central Central Munich HamburgFrankfurt Berlin London Paris 47% High point Central London Central Paris Munich Berlin Frankfurt Hamburg Madrid Brussels Milan Milan Madrid Brussels 7

8 ARIB P PARI ARIB RI ARIBAS R REAL ARIBAS RE E ARI ARIBA AS REAL MAIN OFFICE SUBMARKETS OFFICE MARKET INDICATORS PROPERTY REPORT - MAIN OFFICE MARKETS IN WESRN EUROPE - OCTOBER 212 Take-up (m 2 ) (rolling year) Vacant space (m 2 ) Average rent ( /m 2 /year) (12 months) (12 months) yearon-year change Q2 212 Q2 212 Paris - Western Crescent 536, 589, -9% 176, 92, 949, 873, , 421, -25% 77, 389, 395, 335, , 126, -3% 19, 27, 222, 191, London - City 395, 464, -15% 9, 743, 729, 747, London - West End 279, 262, 7% 6, 316, 316, 31, , 159, -61% 17, 154, 156, 166, , 23, -7% 4, 58, 59, 558, , 142, -11% 25, 121, 138, 184, , 114, 17% 4, 14, 152, 186, , 18, -9% 24, 224, 265, 241, , 224, -1% 25, 522, 532, 577, , 76, -12% 31, 152, 176, 176, , 72, -62% 7, 93, 84, 84, Constant exchange rate / = INVESTMENT MARKET INDICATORS (12 months) City Rents in Pounds: West End Rents in Pounds: Office investment volume ( million) Office prime yield (%) (12 months) year-on-year change Q ,766 2,18 37% Paris - Western Crescent 2,43 2,247-9% % London - City 8,223 6,748 22% 1, London - West End 4,877 4,931-1% 1, % n.a. n.a. n.a ,319-25% % % % % % % Constant exchange rate / =

9 ARIB P PARI ARIB RI ARIBAS R REAL ARIBAS RE E ARI ARIBA AS REAL OFFICE MARKET INDICATORS WESRN, CENTRAL AND EASRN EUROPE (12 months) Take-up ( m 2 ) (rolling year) (12 months) PROPERTY REPORT - MAIN OFFICE MARKETS IN WESRN EUROPE - OCTOBER 212 Vacancy Rate ( %) Prime Office Rents ( /m 2 /year) Avg. Q2 212 Q2 212 Central Paris 1,632 1, Moscow 961 1, n.a. n.a. Central London 956 1, ,359 1,359 1, Munich Berlin Frankfurt Hamburg Brussels Düsseldorf Madrid Milan Cologne Bucharest n.a. n.a. Lyon Amsterdam St Petersburg Barcelona Luxembourg Lille n.a. n.a. n.a Toulouse n.a. n.a. Marseille n.a. n.a. n.a Lisbon The Hague Manchester Rome Glasgow Edinburgh Birmingham Bratislava Kiev n.a. n.a. n.a n.a. n.a. Constant Exchange rate / = Rents in Pounds: Central London Manchester Glasgow Birmingham Edinburgh

10 ARIB P PARI ARIB RI ARIBAS R REAL ARIBAS RE E ARI ARIBA AS REAL INVESTMENT MARKET INDICATORS WESRN, CENTRAL AND EASRN EUROPE PROPERTY REPORT - MAIN OFFICE MARKETS IN WESRN EUROPE - OCTOBER 212 Office investment volume ( million) (rolling year) Office prime yields ( %) (12 months) (12 months) Q2 212 Central London 16,316 13,78 4, Central Paris 1,279 8,266 1, Munich 2, Berlin 1,553 1, Frankfurt 1,418 1, Hamburg 922 1, Madrid Amsterdam Lyon Düsseldorf Vienna Cologne Luxembourg Brussels Manchester Milan The Hague Birmingham Marseille Glasgow Barcelona Lisbon Rome Lille Toulouse n.a. Bucharest Edinburgh Constant Exchange rate / =

11 ARIB P PARI ARIB RI ARIBAS R REAL ARIBAS RE E ARI ARIBA AS REAL GLOSSARY aribas Real Estate Research is working on producing indicators which are as comparable as possible. This is a complex issue, due to cultural differences from market to market. Nevertheless, as we aim to actively contribute to the transparency of the markets, we have high lighted those definitions and indicators which are strictly comparable, so that our readers can understand what the indicators mean. Furthermore we have decided to adopt the PEPCIG 1 definitions, on which most of the following indicators published by aribas Real Estate are based. 2 and from aribas Real Estate International Research. is the average of each of the last four by the surface of each lease signed during the quarter, in either new or second- Completions represent the total amount of floor space that has reached practical completion and is occupied, ready for occupation or an occupancy permit where required has been issued during the survey period. Central London Southbank, Western Fringe and Northern Fringe. Central Paris Western Crescent and Inner Rim. Core Investment Vehicles target returns at 11.5 % and lower, with gearing level up to 6 % of Gross Asset Value. Closed Ended Fund is a vehicle that has a targeted range of investor capital and a finite life. represents the total amount of floor space for all that have the potential to be built in the future through having a secured level of planning permission but remain unimplemented at the survey date. It includes all proposed new buildings, those constructed behind retained facades and buildings (or parts of buildings) undergoing a change of use to offices. Exchange Rate from into for rents is the average value observed over the quarter. Exchange Rate from into for investment volumes for each quarter is the average value over that period. Full-year investment volumes in both currencies are made up by adding the four quarters of each year. is a public vehicle that does not have a finite life, continually accepts new investor capital and makes new property investments. Investment und Asset Management e.v.). Gross Asset Value is the sum of the Gross Capital Value of properties, cash and marketable securities and other (non-operating) assets. Investment volume takes into account all commercial properties aribas Real Estate is aware of, whose owner has changed during the studied period, whatever the purchasing price. It includes (supermarkets, hypermarkets), Industrial and Logistics Warehousing Leisure, Car Parks, Care Homes, parts of portfolio which can not be split up by Initial Gross Yield is defined as Gross income (i.e. income before costs of ownership) over purchase price excluding costs of acquisition. Initial Net Yield costs of acquisition. Prime Office Rent the survey date for an office unit: - of standard size commensurate with demand in each location - of the highest quality and specification - in the best location in a market Investment volume by investor/seller type refers to the following categories: Insurance, Private Investors, Public Sector, Corporates, Property Companies & Investment volume by investor/seller nationality refers to the following categories: PROPERTY REPORT - MAIN OFFICE MARKETS IN WESRN EUROPE - OCTOBER 212 represents refurbishments, where building work must involve either structural alteration, and/or the substantial replacement of the main services and finishes. The quality of the floor space must have been substantially improved from its previous condition so as to offer accommodation of a modern standard although not necessarily to the standard of a completely new building. target returns in excess of 17 %, with gearing levels above 6 % of Gross Asset Value. Actual transactions are used in France, Germany and Belgium to support the headline prime rental quoted, but one-off deals, which do not represent the during the survey period a hypothetical rent is quoted, based on expert opinion of market conditions. Space calculation Completions) as well as Rental values are based on Gross Letting Area space, contrary to the other main European markets, which use Net Letting Area. In order to make the Spanish figures comparable across all monitored markets, they should be multiplied by.82 (NLA =.82 GLA). This ratio is applied by aribas Real Estate to produce international indices and benchmarks. represents the total floor space known to have been let or pre-let, sold or pre-sold to tenants or owner-occupiers during the survey period. It does not include space that is under offer - A property is deemed to be taken-up only when contracts are signed or a binding agreement exists - Pre-let refers to take-up that was either in the planning or construction stage - All deals (including pre-lets) are recorded in the period in which they are signed - Contract renewals are not included - Sales and leasebacks are not included as there had been no change in occupation - change. The breakdown of take-up by business sector is compatible with the European NACE code. represents the total amount of floor space in properties where separate definition) at the survey date. It includes properties for owner occupation, which are reported separately. It does not include sites being cleared for possible development in the future. Property that is under construction but pre-let or for owner occupation is recorded separately where appropriate. Value-added Investment Vehicles target returns of 11.5 % to 17 %, with gearing levels between 3 % and 7 % of Gross Asset Value. Vacancy represents the total floor space in existing properties, which are physically vacant, ready for occupation in the next three months (this period covers fit-out time) and being actively marketed at the survey date. Vacancy includes sublet space (except in Germany), but where possible, vacant sub-let space is recorded separately. In France, vacancy excludes premises which the owner will renovate only once a lease is signed. Spain only counts immediately available space. Vacancy Rate represents the total vacant floor space including sub-lettings divided by the total stock at the survey date. 1 Pan-European Property Common Interest Group. This group assembles a wide 2 European Association for Investors in Non-listed Real Estate Vehicles. aribas Real Estate cannot be held responsible if, despite its best efforts, the information contained in the present report turns out to be inaccurate or incomplete. This report is released by aribas Real Estate and the information in it is dedicated to the exclusive use of its clients. The report and the information contained in it may not be copied or reproduced without prior permission from aribas Real Estate. Should you no longer wish to receive this report, or wish to modify the conditions of reception of this report, please send an to: unsubscribe.mailing@bnpparibas.com 11

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