Office Market Snapshot Year-end 2015

Transcription

1 Research & Forecast Snapshot EMEA Office Q1 216 Office Market Snapshot Year-end 215 Summary Economic backdrop: office-based jobs continue to grow > > Despite the need for continued Quantitative Easing across the continent, and some pockets of weak-to-negative economic growth, 215 was another favourable year for the EU-economy and wider office-market. GDP rose across the EU-board by 1.8% with countries such as Ireland, the Czech Republic and Sweden posting much GDP growth rates of 5.8%, 4.4% and 3.3%, respectively. Office-based jobs continued to grow by around 9,, driven by continued private sector expansion - particularly in the TMT and Professional Services sectors. page 2 Occupational market: activity increases throughout the region > > The growth in office-based jobs had a very positive impact on office demand during 215. Over 4.2 million sq m of transactional activity was recorded during H2 215 in the ten cities which form Colliers International EU Occupier Demand Index - this is the highest level of demand recorded since 27. Demand growth was witnessed across the majority of markets, and in many instances new supply is failing to play catch-up leading to falls in vacancy levels. > > In the UK markets, notably, this is most obvious, leading to upward pressure on rents. Similar trends are also visible in other key European, growth cities such as Berlin, Stockholm, Copenhagen, Madrid, Milan and Dublin. page 3 > > As per tradition, three countries continued to be responsible for the majority of office investment volumes in 215: the UK, France and Germany. Overall, the price per sqm increased to 4,34, the highest recorded value since Q4 27. Volumes in Italy doubled as the total volume increased from 2.1 billion in H2 214 to 4.8 billion in H2 215, as a lack of suitable product in other European markets and improved economic conditions has attracted foreign investors to Italy. > > The popularity of European office markets is also illustrated by widespread yield compression, notably for CBD-located assets. Virtually every market in EMEA witnessed some form of yield compression over the year, bar those already at the bottom. > > The sharpest yield compression was seen in Italy where prime Rome yields decreased from 6.2% to 5.%, and in Milan from 5.6% to 5.%. This trend was also seen in Barcelona (down 5 bps to 4.75%). Berlin (down to 4.%) and Stuttgart (down to 4.3%) also saw lower yields amidst increasing interest from occupiers for these German cities, which has stimulated investor demand - both cities recorded record high investment volumes in 215. > > As our recent Global Investment Outlook pointed out EMEA remains one of the top destinations for cross border investors, and the office sector remains the most popular pick. The outlook for prime CBD yields remains positive in the majority of markets, where a healthy finance gap and competition for product will continue to compress yields further, or keep them at low levels, as suitable investment supply dries up. page 4 Capital markets: office investment volumes record growth for the sixth-year running > > Total European office volumes grew by 12% in 215 to reach 116 billion, according to figures produced by Real Capital Analytics (RCA). This represents the sixth year in row that office investment volumes have increased, as it continues to be the most popular sectoral pick amongst investors.

2 ECONOMIC BACKDROP ECONOMIC GROWTH/ GDP The EU-28 economic-bloc, as measured by GDP, continued to grow in 215 by around 1.8%. This overall growth figure was enabled by the majority of European economies positing positive GDP growth, with only Greece showing an economic decline of -.3%. Ireland (+5.8%) had the largest increase, followed closely by the Czech Republic (+4.4%), Romania (3.7%), Poland (3.5%) and Sweden (3.3%) - all of which saw their economies grow significantly. For 216, GDP output is expected to continue to grow at slightly faster pace of +2.1% overall. However, although lower oil and commodity prices are likely to help stimulate growth in consumer spending, concerns over the need for Quantitative Easing (QE) across the continent and the uncertainty generated by EU referendums, notably in Britain, threaten to slow down the rate of economic growth. As a result, we are likely to witness a slow start to 216, followed by a more positive economic rebound in the second half of the year as occupiers have less uncertainty to contend with in their future business planning. BUSINESS CONFIDENCE Business confidence among business service providers in the EU, as measured monthly by Eurostat, declined marginally in January 216. According to the poll, business managers have become less optimistic of the year ahead due to increasing global market uncertainty. Recent confidence indicators in Germany and France also came out lower than the month before. Despite this dip in January, the indicator still remains higher than a year ago and the mid-term trend since August 213 remains positive. Employment & Office-Based Jobs The collective unemployment rate in the European Union decreased to 9.5% in 215, but remains higher than the 7.2% trough of 27. Over the coming years, however, the unemployment rate is expected to decrease slowly as occupiers continue to expand. With regards to office-based jobs, the story is more positive. Since 29, the number of office related jobs in the EU-area has continued to increase by around 5%, reaching close to 14 million at the end of 215. By the end of 216, office based jobs could reach 15 million, surpassing their previous 28 peak. This growth rate has been driven by both an economic rebound, and the response to a increasing shift towards private, service-sector related employment. Technology and the Tech-Media-Telecoms sector have been at the forefront of this rebound, enabling office-based jobs to grow steadily over the past decade, and especially since 211. Concurrently, not all sectors have been showing positive growth signs: jobs in the public and financial sector have been declining on the whole. Fig. 1: EU Office Jobs, GDP and Unemployment [27-217; %] 12 GDP Change Increase in Office Jobs Unemployment Rate Source: Markit/ Focus Economics/ Colliers International 2 EMEA Research & Forecast Report Year-end 215 Office Colliers International

3 OCCUPATIONAL MARKET ACTIVITY INCREASES THROUGHOUT THE REGION In the majority of EMEA markets, the activity of occupiers increased during 215, with a sharp increase notable in H Now that the years of economic malaise seem to have passed in most markets, companies have started to relocate and expand to new premises that suit their business. A review of ten of Europe s top office markets (, Paris, Berlin, Munich, Warsaw, Moscow, Milan, Madrid, Dublin, Amsterdam) illustrates the extent to which take-up activity expanded in 215 across the continent. In total, office take-up rose by 14% in 215 compared to 214, with over 8.5 million sq m of transactional activity recorded. Paris experienced a large increase in volume with 26% higher take up compared to H2 214, after a flat first half year. An increase in small and medium sized transactions took the half year volume to one of the highest since 212. German cities such as Berlin (+24%) and Munich (+44%) performed well, with Munich recording the highest take-up level since 211. Amsterdam showed improvement with 45% higher take-up, recording the best half year since 27. More economic stability has provided increased transactional activities in some of the peripheral economies in Europe. Madrid (+59%), Dublin (+42%) and Lisbon (+8%) showed a sharp increase in take-up compared to the second half of 214. In, although take-up declined in all major districts relative to 214, net absorption reached the second highest level since 26 as occupiers continued to absorb space faster than it can be delivered. This lower take-up activity is mostly the result of a lack of new/available supply in the prime sub-markets. Also, most new space being delivered is already pre-let. Most CEE markets also recorded higher take-up levels with Prague (+23%), Budapest (+2%), Warsaw (+26%), Bratislava (+18%) and Moscow (+26%) showing increases. Decreasing take-up levels in CEE were recorded in Bucharest (-35%), St. Petersburg (-17%) and Sofia (-1%). Other cities with a decline in take-up were Brussels (-2%) and Vienna (-4%). Alongside the positive occupier climate there was increased construction activity in cities like, Bucharest and Munich. The majority of these new constructions are pre-let projects, an example of this is the building for Royal Bank of Canada (23, sq m) at 1 Bishopsgate in City. In most European cities the amount of vacant office space has decreased, a direct result of the higher take-up figures. High decreases were mostly seen in CEE markets like Bratislava (-4% compared to mid-215) and Budapest (-2.1%). In Kiev the vacancy has slightly recovered to 17.5% after a sharp increase in H1 215 to 22.8%. The vacancy rate in Stockholm remained stable on a record low of 2%, coming from 1% in H2 29. Istanbul has the highest vacancy rate among the major office cities in Europe with a rate of 24.8%, an increase of 4.5% in the second half of 215. This is mainly due to a combination of new additions to the office stock in the prime CBD and Maslak districts and the economic uncertainty in Turkey. Rome was another city where the vacancy rate increased (+1.6%). Fig. 2: Top Ten Occupier Demand*: Bi-annual Take-up [29-215; Million sq m] Source: Colliers International *, Paris, Berlin, Munich, Warsaw, Moscow, Milan, Madrid, Dublin, Amsterdam RENTS CBD rents have increased in about a quarter of the markets across the region in the second half of 215 as a more positive economic climate has stimulated demand on these locations. Milan performed well with 9% rental growth in the second half of 215 alongside other Southern European markets such as Rome (+7%), Barcelona (+5%) and Madrid (+2%). The continuation of economic recovery in these markets is being reflected in a positive change in rents. Stuttgart saw CBD rents going up to record levels with an increase of 7% in H Other markets in Western Europe also saw rental increases such as City (+4%), Hamburg (+4%) and Berlin (+2%). Such positive developments were also seen in Nordic cities of Stockholm (+3%) and Copenhagen (+6%). Rents in Dublin remained stable in H2 after an increase of 25% in H Prime rents in most markets in CEE such as Warsaw and Bucharest remained stable. Lower rents were recorded in Kyiv (-3%) and Riga (-6%). Saint Petersburg (-24%) saw a sharp correction of rents because of the weakening economic situation in these cities. Markets in the Middle East showed a mixed picture with rents in Abu Dhabi and Jeddah (both +19%) increasing and rents in Riyadh decreasing (-13%). OUTLOOK H2 215 H Most markets across EMEA remain tenant favorable, providing space for negotiable terms. Exceptions are the main cities in the Dublin, Hamburg and Stockholm where markets are more in favor of landlords. Here the lack of options will make negotiations more difficult for tenants, and CBD rental increases can be expected. Vacancy rates in most markets are expected to decrease or remain stable. Few exceptions are Zürich and Vienna where vacancy rates are expected to increase due to lower occupier activities. 3 EMEA Research & Forecast Report Year-end 215 Office Colliers International

4 Tab. 1: Office Rents and Prime Yields Country City Measurement Prime CBD Rent 6M Change (%) Y-o-Y CHange (%) Outlook Average CBD Rents PRime Yield (%) 6M Change (BPS) Y-O-Y Change (BPS) Vienna Austria EUR/sq m/month Minsk Belarus EUR/sq m/month Antwerp Belgium EUR/sq m/month Brussels Belgium EUR/sq m/month Sofia Bulgaria EUR/sq m/month Zagreb Croatia EUR/sq m/month Prague Czech Republic EUR/sq m/month Copenhagen Denmark DKK/sq m/year 1, , Cairo Egypt USD/sq m/month Tallinn Estonia EUR/sq m/month Lyon France EUR/sq m/month Paris France EUR/sq m/month Marseille France EUR/sq m/month n/a 5 Tbilisi Georgia USD/sq m/month Berlin Germany EUR/sq m/month Düsseldorf Germany EUR/sq m/month Frankfurt Germany EUR/sq m/month Hamburg Germany EUR/sq m/month Munich Germany EUR/sq m/month Stuttgart Germany EUR/sq m/month Budapest Hungary EUR/sq m/month Dublin Ireland EUR/sq m/year Tel Aviv Israel ISL/sq m/month 125. n/a n/a n/a n/a n/a Milan Italy EUR/sq m/month Rome Italy EUR/sq m/month Riga Latvia EUR/sq m/month Vilnius Lithuania EUR/sq m/month Casablanca Morocco EUR/sq m/month 18.3 n/a n/a n/a n/a Oslo Norway NOK/sq m/year 4,5. 3, Krakow Poland EUR/sq m/month Poznan Poland EUR/sq m/month Tricity Poland EUR/sq m/month Warsaw Poland EUR/sq m/month Wroclaw Poland EUR/sq m/month Lisbon Portugal EUR/sq m/month Bucharest Romania EUR/sq m/month Moscow Russia USD/sq m/month Saint Petersburg Russia USD/sq m/month Jeddah Saudi Arabia SAR/sq m/year 1,6. 19 n/a 1, n/a Riyadh Saudi Arabia SAR/sq m/year 2, n/a 1, n/a Belgrade Serbia EUR/sq m/month Bratislava Slovakia EUR/sq m/month Cape Town South Africa ZAR/sq m/month Barcelona Spain EUR/sq m/month Madrid Spain EUR/sq m/month Stockholm Sweden SEK/sq m/year 6, , Zurich Switzerland CHF/sq m/year Eindhoven The Netherlands EUR/sq m/year n/a n/a Amsterdam The Netherlands EUR/sq m/year Rotterdam The Netherlands EUR/sq m/year Istanbul Turkey USD/sq m/month Kyiv Ukraine USD/sq m/month Abu Dhabi United Arab Emirates USD/sq m/month Dubai United Arab Emirates USD/sq m/month Belfast United Kingdom GBP/sq ft/month Edinburgh United Kingdom GBP/sq ft/month n/a Birmingham United Kingdom GBP/sq ft/year City United Kingdom GBP/sq ft/year West End United Kingdom GBP/sq ft/year Manchester United Kingdom GBP/sq ft/year Outlook 4 EMEA Research & Forecast Report Year-end 215 Office Colliers International

5 CAPITAL MARKETS INVESTMENT VOLUME REMAINS AT HIGH LEVEL Fig. 3: Office Investment by Market [Billion ] Total office investment volumes in EMEA reached 116 billion in 215, according to figures produced by Real Capital Analytics (RCA). This represents an increase of 12% compared to 214, the sixth year in row that office investment volumes have increased. However, this total volume is still someway short of the 172 billion peak registered in 27. Office-sector investment continues to remain the most popular sector of choice in Europe, but there are signs that it is losing market share to other sectors as alternatives such as hotels and residential continue to pick up a head of steam. As per tradition, three countries continued to be responsible for the majority of office investment volumes in 215: the UK, France and Germany. Overall, the price per sqm increased to 4,34, the highest recorded value since Q UK Germany France Source: RCA/ Colliers International Nehterlands Sweden Spain H2 215 H2 214 Italy Poland Russia More than a third of office investments were attributed to deals in the with about 2 billion invested in H2 (-4% compared to H2 214). With such a high volume of transactions, it will come as no surprise that half of the top 2 single asset deals took place in. The largest transaction in 215 was the One & Two Southbank Place building, acquired by Almacantar. This building will be redeveloped into modern office space with Shell International being the main tenant. Key transactions in UK regional locations such as Slough and Leeds also contributed to the UK volume. Despite the fact that no transactions in the top 2 took place in Germany, it recorded a volume of 1.8 billion in the second half of 215, 9% lower than the volume in the same period in 214. The largest transaction was the acquisition of the Stella Portfolio, by Swiss Life and Corpus Sireo, comprising 26 office properties for approximately 298 million. France performed better in the second half of 215 with 37.9% increase of investment volumes to 12 billion. The largest transaction in France was the 677 million acquisition of Tour T1 by Gecina. The listed French investor acquired several other buildings in Paris in 215 including PSA group headquarters and the Tour Van Gogh. Volumes in Italy doubled as the total volume increased from 2.1 billion in H2 214 to 4.8 billion in H2 215, as a lack of suitable product in other European markets and improved economic conditions has attracted foreign investors to Italy. The largest deal was the 345 million acquisition of the Palazzo Broggi building in Milan by listed Chinese investor Fosun. Whilst office investment volumes in Italy were positive, the Netherlands (-18%), Spain (-1%), Russia (-23%), Sweden (-32%) and Poland (-29%) recorded lower investment volumes. Tab. 2: European Office Key Transactions 215 Date Market Name Buyer Seller Est. Price Office space July 215 Source: RCA/ Colliers International One & Two Southbank Place Almacantar Canary Wharf Group JV Qatari Diar 775m 53,196 sq m July 215 France, Paris Tour T1 Gecina Ivanhoe Cambridge 677m 61,537 sq m November 215 Broadgate Quarter Blackstone Hines JV HSBC AIt 583m 42,455 sq m November 215 Blue Fin Building Temasek Holdings JV Oxford Properties Group Time Inc 582m 46,173 sq m December 215 Spain, Madrid Torre Espacio Andrew Tan Grupo Villar Mir 558m 56,25 sq m October 215 Russia, Moscow Oruzheynyy Complex MegaFon Don Stroy 252m (partial interest of 5%). 76, sq m July 215 France, Paris Tour Sequoia France Domaine OBO Government of France Tishman Speyer 484m 53,598 sq m October 215 December 215 August 215 Slough Leeds 99 Bishopsgate China Life Insurance & Qatar Investment Authority Brookfield Property Partners 373m. (partial interest of 8%) 31,586 sq m Bath Road offices AEW Europe SEGRO 464m 9,327 sq m Thorpe Park Phase II Legal & General Property Scarborough Group 23m (partial interest of 5%). 139,35 sq m 5 EMEA Research & Forecast Report Year-end 215 Office Colliers International

6 YIELDS In most markets yields compressed further in H2 215 as demand for CBD assets remains high, as low interest rates and a strong weight of capital continue to stimulate the demand for real estate. Across EMEA only one market (Brussels) showed a small increase of CBD yields. The sharpest decreases were seen in Italy where Rome (down from 6.2% to 5.%) and Milan (from 5.6% to 5.%) posted significantly lower yields. There has been increasing interest for large portfolios and prime assets in these markets, mostly from foreign investors that can t find suitable product in core markets. This trend was also seen in Barcelona (down 5 bps to 4.75%) and is expected to continue this year. Berlin (down to 4.%) and Stuttgart (down to 4.3%) also saw lower yields. Increasing interest from occupiers for these German cities has stimulated investor demand, and both cities recorded record high investment volumes. Yields in Paris compressed further to 3.5%, from 3.9% in H Elsewhere, yields in Switzerland remained stable with Geneva (2.7%) and Zurich (3.2%) having the lowest yields in EMEA - the ultimate safe-havens. An unchanged picture was also seen in the UK where yields remained stable in West-End, Birmingham and Manchester. Only City showed lower yields (from 4.% to 3.75%). While prime CBD yields have compressed or remain stable, there has been limited movement in secondary/peripheral yields. Only St. Petersburg (-.5%), Paris (-.5%) and Munich (-.75%) have registered any significant yield compression in secondary/peripheral pricing during 215. Values Yields Fig.4: CBD Prime Office Yields [Q4 215; %] Geneva Zurich WE Paris Vienna City Munich Berlin Hamburg Oslo Dublin Stockholm Stuttgart Copenhagen Frankfurt Madrid Barcelona Düsseldorf Manchester Milan Rome Birmingham Amsterdam Prague Brussels Warsaw Rotterdam Tallinn Bratislava Istanbul Vilnius Budapest Bucharest Lisbon Riga Jeddah Dubai Zagreb Belgrade Sofia Moscow Saint Petersburg Abu Dhabi Kyiv Source: IPD/ Colliers International 6 EMEA Research & Forecast Report Year-end 215 Office Colliers International

7 Outlook Investor activity will remain high in EMEA in the coming year. Interest rates are expected to remain low and stock markets continue to be volatile, making real estate an attractable investment class. As our recent Global Investment Outlook pointed out EMEA remains one of the top destinations for cross border investors, and the office sector remains the most popular pick. The outlook for prime CBD yields remains positive in the majority of markets, where a healthy finance gap and competition for product will continue to compress yields further, or keep them at low levels, as suitable investment supply dries up. Only in the very hot markets such as we do see a possibility of a price correction, especially given that financial costs and record low yields have eroded the finance gap available over 215. AutHor: Kes Brattinga Senior Analyst EMEA Research kes.brattinga@colliers.com Business Contacts: Richard Divall Head of Cross Border Capital Markets I EMEA richard.divall@colliers.com Damian Harrington Director Head of EMEA Research damian.harrington@colliers.com Contributors: Juliane Priesemeister, Information Designer juliane.priesemeister@colliers.com About Colliers International Group Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 16,3 professionals operating from 52 offices in 67 countries. With an enterprising culture and significant inside ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include lease brokerage, global corporate solutions, investment sales and capital markets, project management and workplace solutions, property and asset management, consulting, valuation and appraisal services, and customized research and thought leadership. Colliers International has been ranked among the top 1 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 1 consecutive years, more than any other real estate services firm. Copyright 216 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. 7 EMEA Research & Forecast Report Year-end 215 Office Colliers International