EMEA Office MarketView 20 CBRE Global Research and Consulting EMEA PRIME YIELD 6.6 BPS EU-28 VACANCY RATE 0.01 PP EMEA PRIME RENT 0.02% EMEA CAPITAL VALUE 1.3% TAKE UP 12.2% TAKE-UP IN WESTERN EUROPE REACHES HIGHEST LEVEL SINCE THE FINANCIAL CRISIS Quick Stats Chart 1: EMEA Prime Office Rent Cycle, 20 Change from Q1 Rent Yield Hot Topics Demand improving in a number of western European markets. 1 Madrid records first prime rental growth since the crisis, while markets with an oversupply of new space face downward pressure. Overall vacancy rate flat with declines in western Europe negated by sharp increases in core CEE markets due to new supply. Aggregate European take-up bounced back by 12.2% on Q1 20, despite an exceptionally low level of demand in Moscow. An addition to further strong demand in London, was Paris which recorded its highest level of take-up since 2012, but it remains to be seen if this performance can be maintained given a number of challenges still facing the market. Particularly encouraging was the level of demand recorded in southern Europe, with Madrid, Milan and Lisbon all reporting encouraging transaction levels. Despite some decreases in the vacancy rate in western European markets, a large volume of speculative completions in core CEE markets meant the EU-28 vacancy rate remained effectively flat for the second consecutive quarter. With the completion rate in these markets currently outstripping demand, further significant increases in the vacancy rate are expected over the next 12-18 months. Source: CBRE Prime rents were generally stable in 20, with rental decline as a result of the economic crisis fading. Symbolic of the improved economic stability over the past 12 months was an increase in the prime rent in Madrid, the first prime rental growth in a southern European market since the downturn. However, there is a cluster of markets, particularly in CEE, which have moved to the downward curve of the cycle due to an oversupply of newly completed space which is outweighing demand. The markets with the largest development pipeline as a proportion of stock are all in CEE. Although development in western Europe has picked up in 20 it is heavily focused in a few key markets where the impact on stock levels is less pronounced. In some of the recovery markets there is still almost no development in progress. As demand continues to improve this will further limit the options for occupiers looking to relocate.
2002 Q4 2002 2003 Q4 2003 2004 Q4 2004 2005 Q4 2005 2006 Q4 2006 2007 Q4 2007 2008 Q4 2008 2009 Q4 2009 2010 Q4 2010 2011 Q4 2011 2012 Q4 2012 20 Q4 20 20 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun- Jun- Index Q1 2000=100 20 EMEA Office MarketView OFFICE RENTS Prime rents were generally stable in 20, with the EMEA Prime Office Rent Index effectively flat over the quarter. Rental decline as a result of the economic crisis has faded away, at least at the prime end of the market, with virtually all affected markets now reaching a stable level. Symbolic of the improved market conditions over the past year was an increase in the prime rent in Madrid, which rose by 1% in the quarter, the first increase in a southern European market since the crisis. Prime rental growth in some of the stronger performing markets continued in, with a stand out performance in Dublin where rents rose by.2% to 430.50/sq m annum. In addition, further rental growth was recorded in London West End (2.4%). In both markets, a shortage of available prime space and strong levels of demand is continuing to drive rental growth. With very little development coming through in the next 12-18 months further strong rental growth is expected. Although rental decline as a result of the economic downturn has ceased there is a cluster of markets, particularly in CEE, which have moved to the downward curve of the cycle due to an oversupply of newly completed space. In a further 1.9% decline was recorded in Warsaw, while Prague and Moscow are expected to see rental decline over the coming quarters. In the latter, geopolitical uncertainties have coincided with a wave of large speculative office completions, which is expected to result in significant rental decline in the short term. OFFICE TAKE-UP Chart 2: EMEA Prime Office Rent Index 20% 15% 10% 5% 0% -5% -10% -15% % Change pa Nominal Terms Index Table 1: EMEA Prime Office Rent Index Index (Q1 2000 = 100) Quarter-on-Quarter (% Change) Year-on-Year (% Change) Q3 Q4 Q1 160 150 0 0 120 110 100 2 2 3 3 3-0.1-0.2 0.5 0.3 0.0-0.1-0.2 0.6 0.7 0.8 Chart 3: Aggregate Office take-up (000 s SqM) 5,000 4,500 Western Europe CEE 2 Despite the exceptional situation in Moscow where take-up fell to 84,000 sq m the lowest level ever recorded aggregate European take-up still rose by a healthy 12.2% on Q1 20. There were clear indications of a recovery in demand in western Europe, where take-up rose by 21% on the previous quarter to the highest post-crisis level recorded. Encouragingly there was evidence of an improvement in southern Europe, with take-up in Milan more than doubling to 94,000 sq m while Lisbon recorded one of its strongest quarters in recent years. Although the take-up level in Madrid fell back on the Q1 level, there was a large volume of smaller transactions to small and medium enterprises, some of which are now beginning to acquire expansionary space. Elsewhere, Amsterdam and Brussels showed a sharp recovery on very weak Q1s, with take-up rebounding by over 200%. There was also a strong performance in the key London and Paris markets. For London this was a continuation of an existing positive trend in demand, however the level in Paris was slightly surprising given some relatively downbeat economic news for the French economy and challenging market conditions. A number of large transactions provided a boost to the figure which had been delayed from previous quarters, so it remains to be seen if this is the start of a sustainable recovery in demand in the French capital or an exceptional quarter. 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Table 2: Office take-up (000 s SqM) Q4 20 Q1 20 20 Q-on-Q (%) Y-on-Y (%) Brussels 89 58 185 218 71 Paris 528 506 634 28 31 Frankfurt 127 93 72-23 -46 Dublin 61 63 35-45 22 Milan 104 53 94 76 105 Moscow 229 2 84-61 -75 Madrid 121 98 68-31 34 London 365 267 344 29
St Petersburg Moscow Warsaw Prague Budapest Madrid Amsterdam Frankfurt Barcelona Milan Dublin Dusseldorf Helsinki Brussels Berlin London City Hamburg Paris Munich Vienna London Central Lyon Marseille Lille London WE % Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun- Jun- Chart 4: EU-28 Vacancy Rate 0.8 0.6 0.4 0.2 0.0-0.2-0.4 Change per Quarter (PP) Table 3: Office Vacancy Rate (%) Q3 EU-28 Vacancy Rate Q4 Q1 Paris 6.6 6.8 7.1 7.1 7.0 12 10 8 6 4 2 - OFFICE VACANCY Despite an improvement in demand in the EU-28 vacancy rate was effectively flat for a second consecutive quarter, remaining stubbornly high at 11.3%. This is largely due to some significant increases in the vacancy rate in key CEE markets namely Prague, Warsaw, Moscow and St Petersburg where a high level of newly completed space is outweighing absorption, a trend which is set to continue. Conversely, most of the key western European markets recorded lower vacancy in. The continuing strength of demand in Central London produced the third consecutive quarterly decline in the vacancy rate, with availability in all five submarkets now below average levels. An improvement in demand in Brussels, Paris and Amsterdam contributed to declines in vacancy, whilst all five German markets also saw the vacancy rate fall over the quarter. The most notable decline was in Frankfurt, where vacancy fell sharply for the second consecutive quarter due to the removal of obsolete stock and the conversion of older buildings into residential units. 20 EMEA Office MarketView Frankfurt 15.0 15.0 15.3.3.5 Dublin 17.2 16.4 15.3.9.2 Milan 12.2 12.0 12.2 12.5 12.6 Amsterdam 16.2 16.2 16.7 17.6 17.2 Moscow 11.7 11.3 12.0 12.8.5 Warsaw 10.5 10.9 11.8 12.2.4 Madrid 17.2 17.1 17.2 17.2 17.4 London 5.3 5.2 4.7 4.3 3.9 Chart 5: Vacant Space + 2-year Pipeline as % of Stock Although vacancy rates are starting to come down, the pace of decline in a number of markets is somewhat slower than might be expected at this point of the cycle. Indeed, many of the recovering markets still have a very high vacancy rate, which in Dublin, Amsterdam and Madrid for example is still above %. This is partly due to a structural shift in the availability of office space. The recovery in demand has so far been heavily focused in central locations where availability is limited. The improvement in demand in central areas has not yet filtered out to more peripheral locations where the vast majority of available stock is now located as a result even as demand has improved vacancy rates in some markets are remaining well above pre-recession levels. We expect this polarisation in vacancy to be a persistent feature of the market. Development Pipeline to end 2015 Current Vacancy Rate OFFICE DEVELOPMENT PIPELINE 3 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Table 4: Development Pipeline (000 s SqM) 20 2015 Brussels 180 53 Paris 773 1,096 Frankfurt 279 129 Milan 1 163 Amsterdam 50 21 Moscow 1,415 900 St Petersburg 326 262 The markets with the largest development pipelines as a proportion of existing stock are all in CEE with the stock in Prague, Warsaw, Moscow and St Petersburg forecast to grow by at least 10% over the next 18 months. With much of the space being developed on a speculative basis, further growth in the vacancy rate in these markets is likely in the coming quarters. Although development in western Europe has also increased in 20, it has been heavily focused in a few key markets where the impact on the stock level is less pronounced. Furthermore, much of the space which is being developed is pre-let or let during construction. For example in the London market only a third of the space completing in 20 will be available upon completion. In some of the recovery markets such as Amsterdam, Dublin and Madrid there is still virtually no development despite the improving market conditions. As demand gathers pace, this will further restrict options for occupiers looking to relocate. Even if more schemes start to progress in the second half of 20, it will be several years for these buildings to come to the market, so a shortage of prime office space in central locations is likely to be a feature of the market for the foreseeable future. 3 Madrid 54 265 London 638 312
20 EMEA Office MarketView 4 KEY INDICATORS Country City Prime Office Rent (Local Measure) / SqM / Last 3 Last 12 Annum Months (%) Months (%) Change from Trough* (%) Austria Vienna 25.5 per sq m pm 306.00 0.99 2.00.61 4.65 Belgium Brussels 285 per sq m pa 285.00 0.00 0.00 7.55 6 Croatia Zagreb.5 per sq m pm 174.00 0.00-3.33 0.00 8.3 Czech Republic Prague 19.5 per sq m pm 234.00 0.00-7. 0.00 6 Denmark Copenhagen DK1650 per sq m pa 221.29 0.00-2.94 0.00 5 Finland Helsinki 408 per sq m pa 408.00 3.03 6.11 28.30 4.6 France Lyon 260 per sq m pa 260.00 0.00 -.33.04 5.5 France Marseille 270 per sq m pa 270.00 0.00 0.00 8.00 6 France Paris Ile-de-France 800 per sq m pa 800.00 0.00 0.00 11.11 4 Germany Berlin 22.5 per sq m pm 270.00 0.00 0.00 12.50 4.65 Germany Frankfurt am Main 38 per sq m pm 456.00 0.00 0.00 0.00 4.7 Germany Hamburg 24 per sq m pm 288.00 0.00 0.00 6.67 4.55 Germany Munich 33 per sq m pm 396.00 0.00 4.76 11.86 4.45 Greece Athens 22 per sq m pm 264.00 0.00-4.35 0.00 8.5 Hungary Budapest 20 per sq m pm 240.00 0.00 0.00 0.00 7.5 Ireland Dublin 430.5 per sq m pa 430.50.19 33.28 45.44 5 Israel Tel Aviv ILS106 per sq m pm 271.02-1.85-3.64 11.58 7.5 Italy Milan 480 per sq m pa 480.00 0.00 0.00 0.00 5.75 Italy Rome 380 per sq m pa 380.00-5.00-7.32 0.00 6.25 Netherlands Amsterdam 345 per sq m pa 345.00 0.00 1.47 4.55 5.45 Netherlands Rotterdam 225 per sq m pa 225.00 0.00 2.27 15.38 5.9 Norway Oslo NOK4000 per sq m pa 476.06 0.00 2.56 33.33 5.25 Poland Warsaw 25.5 per sq m pm 306.00-1.92-5.56 10.87 6 Portugal Lisbon 18.5 per sq m pm 222.00 0.00 0.00 0.00 7 Romania Bucharest 18 per sq m pm 216.00 0.00 0.00 0.00 8 Russia Moscow $1200 per sq m pa 876.49 0.00 0.00 41.18 8.5 Russia St Petersburg $800 per sq m pa 584.33 0.00 0.00 6.67 11 Serbia Belgrade 15 per sq m pm 180.00 0.00 0.00 3.45 9.5 Slovak Republic Bratislava 16 per sq m pm 192.00 0.00 0.00 0.00 7 Spain Barcelona 17.75 per sq m pm 2.00 0.00 0.00 0.00 5.5 Spain Madrid 24.75 per sq m pm 297.00 1.02 0.00 0.00 5.5 Sweden Stockholm SEK4500 per sq m pa 491.57 0.00 2.27 12.50 4.5 Switzerland Geneva CHF925 per sq m pa 761.77 0.00-7.50 12.80 4 Switzerland Zurich CHF825 per sq m pa 679.42 0.00-2.94 0.00 3.2 Turkey Istanbul $45 per sq m pm 394.42 0.00 0.00 12.50 6.75 UAE Dubai AED280 per sq ft pa 599.33 0.00 0.00 0.00 7 UK Birmingham 28.5 per sq ft pa 383.09 0.00 0.00 5.56 5.75 UK Bristol 27.5 per sq ft pa 369.64 0.00 0.00 5.77 5.75 UK Edinburgh 28.5 per sq ft pa 383.09 0.00 1.79 5.56 5.75 UK Glasgow 27 per sq ft pa 362.92 0.00 0.00 0.00 6 UK London City 58.5 per sq ft pa 786.33 0.00 6.36 39.29 4.5 Prime Yield (%) UK London WE 107.5 per sq ft pa 44.97 2.38 10.26 34.38 3.75 UK Manchester 30 per sq ft pa 403.25 0.00 0.00 5.26 5.75 * Figures indicate the degree of change from the lowest rent recorded since 2009 to the current level
5 Market Summaries Take-up in Amsterdam rebounded from a very weak Q1 to 79,000 sq m the highest level since 2012. The trend is still towards high quality space in the Zuidas which has resulted in construction being started on several schemes in the area. However, these schemes will not come through to the market until after 2015, so until then availability will remain tight and prime rents are expected to edge upward. Following a weak Q1 take-up in Brussels shot up to the highest quarterly level since 2009. In contrast to the first quarter, demand was driven by some very large transactions to the public sector. Conversely, corporates remained caution and cost sensitive in their activity. However, there has been an increasing number of private sector tenant enquiries in recent months, indicating there may be an improvement in corporate demand in the second half of the year. Activity has continued at pace in Dublin over recent months, and although take-up fell back from the bumper level recorded in Q1, several large transactions were completed just after the end of the quarter. Large requirements from web companies are continuing to drive the market, and with increasingly limited availability prime rents increased by.2%. With the supply-demand imbalance set to continue, further strong rental growth is expected for the foreseeable future. Take-up of office space in Frankfurt fell to one of the lowest quarterly totals recorded in recent years, through a continued absence of larger transactions. This is partly due to a shortage of suitable high quality buildings in the CBD which can accommodate large requirements. Although more schemes are expecting to proceed in the short term, it will be several years before these come to the market. As a result, it is expected there will be some slight increases to the prime rent over the next 12-18 months. Take-up in Central London bounced back in following a typically slow start to the year, increasing by 28% and bringing the 12-month rolling total to the highest level since 2010. In particular, demand from the banking and finance sector continued to improve, accounting for 27% of take-up. Availability fell for the fourth consecutive quarter, and with the supply-demand balance now firmly tilted in the favor of landlords, all Central London submarkets are expected to see double digit prime rental growth in the next 12-18 months. Although demand in Lisbon remains low in a historical context, it is a vast improvement on the previous year, with take-up in the first half of 20 increasing by 61% on H1 20. Although most companies are not yet expanding, an increasing number are changing premises with some large companies relocating to benefit from the lower rental levels. Although an increase in the prime rent is not expected in 20, incentives provided by landlords are starting to diminish. Although take-up in Madrid fell back from the Q1 level, encouragingly there was a large volume of smaller transactions to small and medium enterprises despite an absence of larger deals. Furthermore, for the first time since the crisis there are indications some companies are returning to a growth agenda and looking to take on expansionary space. Overall vacancy remains high, however good quality CBD space has been reducing over recent quarters, and as a result the market recorded its first prime rental increase in the quarter since the downturn. Cost considerations continue to be the major factor for occupiers decision making in Milan, however there is an increasing focus on staff considerations and other social factors. Reflecting this, the majority of deals were done for Grade A space in with a renewal of interest in the CBD as well as the new Porta Nouva district. Manufacturing, and in particular fashion companies continued to be active, and as a result of the improving sentiment in the market rental incentives are starting to fall. Leasing activity in Munich is being driven by expansion and relocation strategy supported by the strong local economy. The city centre continues to be the focus of demand but the shortage of space is encouraging tenants to consider modern and well located inner-city space such as Arnulfpark or Parkstadt Schwabing, whilst the periphery remains a popular location for larger requirements or owner-occupier opportunities. Despite the uncertain French economy, demand in Paris was strong in with take-up reaching the highest level since 2012 boosted by some large transactions. However the market remains fragile. Some of the largest transactions agreed in had actually been delayed for several quarters. Furthermore, companies continue to be driven by consolidation and are usually reducing the amount of space they occupy. There is still demand, but occupiers remain cautious and negotiations tend to be protracted. Take-up in Vienna has dropped back in the first half of 20 and it is likely that the full year total will be below 20, largely due to an absence of larger transactions and reduced activity from the public sector. However, with newly completed space in 20 likely to fall to one of the lowest levels ever recorded, the prime rent in central locations has continued to increase slightly with further moderate growth expected. 20 EMEA Office MarketView 5
20 EMEA Office MarketView 6 The upturn in demand witnessed in Q1 has gained more momentum in the second quarter in Copenhagen, with take-up well above the five-year average. The CBD and Brokvarterer & Frederiksberg attracted the majority of demand - conversely activity in the Harbor areas was almost non-existent. The increasing focus on costs has put rents at the most expensive locations under pressure rents have held up better for high quality offices in less expensive locations. The trend of consolidation to the most attractive submarkets in Helsinki is continuing, with occupiers actively trying to reduce costs through the implementation of efficient workplace strategies. The number of building projects has declined which has resulted in a lower volume of newer office stock. This is supporting rental growth for high quality buildings in the best locations; however the deteriorating economic environment has led to an increasing number of lease surrenders and renegotiations. Demand for both newly built and existing offices in Stockholm is strong. Companies are showing a preference for modern buildings with good access to public transport in attractive locations. In some of these sub-markets where there is a limited supply, a slight increase in rental levels has been recorded. For the remainder of 20 some further gradual rental growth is expected driven by a low level of speculative completion, low vacancy rates and a recovery in the Swedish economy. Take-up in Bucharest accounted for 85% of total leasing activity in, the highest proportion for two years. Pre-leasing accounted for a quarter of total take-up as tenants with large enough requirements to anchor a new scheme are using their position to agree cost-efficient deals. These large requirements tend to come from major IT and telecoms companies who are continuing to set up shared service centres and BPOs in Romania. Demand in Belgrade is being driven by the IT sector, with companies expanding and relocating to the CBD. This demand has been eroding the vacancy rate, and with new supply very limited landlords have been reducing the incentives offered to tenants over the past year. Companies requiring larger units (over 1,000 sq m) have a particularly limited range of options available, which is expected to put upward pressure on prime rents over the next 12 months. The Kiev office market has not seen any significant changes in 20. No new offices were delivered to the market, and the vacancy rate remained stable but high at around 29%. Although prime rents have temporarily stabilized at $30/sq m/month the discount on secondary rents may reach as much as 30% along with a wide range of incentives. Take-up in Moscow in fell to the lowest level ever recorded, with demand from international companies falling away completely. The drop in demand has coincided with the completion of a large volume of new speculative office space, which pushed the vacancy rate up by 1.7 p.p. to.5%. With a further 1.8 million sq m of office space due to complete in the next 18 months, if the demand situation does not dramatically improve the supply-demand imbalance will continue to push the vacancy up at a rapid rate and rents will come under downward pressure. Although demand for office space in Prague is stable, the equivalent of around 10% of the existing office stock will be delivered to the market in the next 18 months, which is increasing competition amongst landlords. However, demand for this type of space remains relatively strong and this is likely to provide some stability for prime rents. But the secondary space tenants leave behind when they upgrade will be much harder to lease and rents will suffer accordingly. Although demand in Warsaw continues to be solid, it is not sufficient to keep pace with the rate of new completions in the city, with 630,000 sq m currently under construction of which 500,000 sq m will complete in the next 18 months. As a result, the vacancy rate is continuing to rise and with competition amongst developers increasing the prime rent is expected to fall to just below 26/sq m/month by the end of the year. The Dubai office market is experiencing rising demand with new requirements reflecting the improving state of the sector, overall business confidence, and positive sentiment from Dubai Expo 2020. The majority of occupier movements comprise office upgrades, expansions and consolidations to more centralized prime locations. Office rental rates in prime locations are expected to see further growth over the foreseeable future, with good quality property in central locations currently in short supply. The main drivers of the Johannesburg market are expansion and cost efficiency. Companies are moving to modern buildings which can facilitate open-plan working and reduced utility bills. This will ultimately result in the redevelopment of older buildings as they are vacated. Occupiers are also showing a preference towards well connected buildings, with the areas around the Gautrain stations of Sandton and Rosebank attracting strong demand. The main driver of leasing activity in Tel Aviv is expansion and consolidation, mainly as the result of global acquisitions of local companies. Companies have continued to move to peripheral submarkets where there is a greater supply of large modern office buildings. Newly completed space in locations where there is already an existing supply of modern offices are offering longer rent free periods.
CONTACTS For more information about this Regional MarketView, please contact: EMEA Research Richard Holberton Senior Director EMEA Research & Consulting Henrietta House Henrietta Place London W1G 0NB t: +44 20 7182 3348 e: richard.holberton@cbre.com Zachary Gauge Analyst EMEA Research & Consulting Henrietta House Henrietta Place London W1G 0NB t: +44 20 7182 2762 e: zachary.gauge@cbre.com Q1 20 EMEA Office MarketView + FOLLOW US GOOGLE+ FACEBOOK TWITTER 7 Global Research and Consulting This report was prepared by the CBRE EMEA Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Disclaimer CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. 7 www.cbre.eu