The sectors that have been driving demand since 2018 are Technology and Media, followed by Professional and Business services. The tightest markets in terms of vacancy levels are Berlin and Paris CBD with a 1.5% vacancy rate.
On a quarterly basis Stockholm and Prague experienced the steepest decreases of available space, from 4% to 2.6% and from 5.1% to 4.3%, respectively. The most significant annual changes were noted in Lisbon (from 8.3% to 6%) and Barcelona (from 7.0% to 5.1%).
This reflects a low supply reserveacross Europe’s markets (the ratio of available space over a three-year take-up average), which corresponds to less than a year’s take-up and ranges from about four months in Berlin and Prague to 27 and 29 months in Madrid and Brussels (see graph below).
Brussels (189%), Dublin (111%) and Barcelona (50%) showed the strongest annual rises in office space take up in Q1 2019 amongst Europe’s biggest cities, says Savills. The most significant drops were noted in Frankfurt (-37%), Warsaw (-29%) and Paris La Défense (-26%) but remain above long-term averages and need to be considered in light of strong activity last year.
Eri Mitsostergiou, Director, European Research, Savills, says:
“The record low vacancy rate across Europe is projected to rise only slightly by the end of 2019. Most markets will continue to see their availability falling or stabilising. A rise in vacancy rate is projected in Amsterdam (from 5.1% to 6.5%), Stockholm (from 4.0% to 5.0%), City of London (from 5.3% to 6.0%) and Paris La Défense (from 4.6% to 5.2%).
“Ongoing strong demand combined with tight supply continues to press rents upwards. Prime rents increased by 5.1% yoy in the CBD and 1.9% in non-CBD locations. Cologne (13.7%), Berlin (10.1%) and Barcelona (12.5%) all registered double-digit annual growth while London rebounded strongly in the first quarter of the year with a 26.5% quarterly rise. For prime non-CBD rents we also noted a significant rise in Berlin (15.9% yoy) and strong recoveries in Barcelona (15%), Madrid (10.6%) and Athens (9.1%).”
Matthew Fitzgerald, Director, Cross Border Tenant Advisory, Savills, says:
“While completion of buildings scheduled for 2019 and 2020 are expected to offer more choice to tenants, we do not expect a significant upswing in Grade A supply or in vacancy rate, as about 45% of this space is already committed. There is approximately 10m sq m under construction (2019 and 2020 pipeline), which can satisfy about 12 months of demand and corresponds to 4% of stock.
“Given that workplace location is core to the attraction and retention of talent, competition for the best buildings is set to continue throughout the rest of the year. As a result, tenants need a business plan further ahead and might also want to consider flexible solutions.”