It remains to be seen whether the negative external environment will eventually “spoil the party,” says Nuveen, but for now the underlying trend in take-up is well above its 10-year average by a factor of +20% in most office markets, rising to +45% and +60% above average in Milan and Rome, respectively.
Technology and creative sectors are driving the demand for space, along with serviced office operators, according to Nuveen. Some markets experienced a relatively quiet start to the year, including the Tier 1 cities of Frankfurt, Munich, Paris CBD and London West End & Midtown.
This can in part be explained by a lack of suitable product, particularly in Paris CBD where the vacancy rate has subsided to 1.8%. In Tier 2 cities, Benelux cities generally had a quiet start to the year. Even Amsterdam’s exceptionally strong performance in Q4 2018 gave way to a below-par start to 2019. Again, part of the reason is lack of product in those sub-markets in which tenants desire. The benchmark prime rent increased by 6% over the first three months of 2019, Nuveen reports.
Stefan Wundrak, Head of Research, Europe, at Nuveen Real Estate, explains:
“We are very positive about growth over the short term. Even in London, the balance between availability and take up is tight across most sub-markets. Looking ahead, we must acknowledge that nominal rents are relatively high in many cities, notably Stockholm, Berlin and Amsterdam – the stars of the current cycle – but also in other German cities.
“By contrast, the Iberian markets look set for further catch up growth. With supply relatively disciplined across the continent, the business cycle is likely to be the key disruptor to an otherwise rosy outlook. Even here, inflation is unlikely to underpin rising interest rates any time soon. It therefore leaves an unpredictable sector specific or more generalised financial market shock to provide the harbinger of the next downcycle. Until that situation occurs, the good times can roll.”