Net effective rents decreased by an average of 2% in the European office sector over the last six months according to Savills research. The falls were greatest in Paris CBD (-12%), Dublin (-11%) and Amsterdam (-5%) the firm said.
However, low vacancy rates of 2.9% in Munich and 2% in Berlin maintained upward pressure on headline rents, despite additional landlord incentives, the firm added.
The amount of available space has risen across Europe. The average core market vacancy rate has risen from 3.0% to 4.5%. However, the firm said that the equilibrium vacancy rate at which there is stable rental growth is about 9% which suggests the core markets have headroom for vacancy rates to increase before prime headline rents are affected.
“In most of Europe, we are observing landlords offering more flexible leasing proposals as a result of market uncertainty,” said Savills European Research associate Mike Barnes.
“For example, Manchester’s rent-free period increased from 12 months to 15 months on a five-year lease during H2 2020 while in Madrid, landlords are able to offer leases with two fixed years plus three optional years. This includes more generous contributions to fit-outs, although rent free periods have remained fairly stable over the six month period.”
The firm also said that it expects average lease incentives to continue rising throughout this year but once certainty returns businesses will return to the workplace. Tenants who are able to lock in improved incentives this year will be the main beneficiaries.