EUROPEAN OFFICE FORECAST 2015-2017 - JULY 2015
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
EUROPEAN OFFICE
FORECAST 2015-2017
A Cushman & Wakefield Research Publication
JULY 2015
CONTENTS
Executive Summary 2
Western Europe
Amsterdam6
Barcelona7
Brussels8
Dublin9
Frankfurt10
Lisbon11
At the time of writing, the uncertainty surrounding Greece is greater than
London12 ever, with an upcoming Greek referendum, the suspension of bail-out talks
and loan default. Therefore, the likelihood of a Greek exit from the
Luxembourg13 Eurozone has now increased to a probability of 50% or more, according to
economic sources. Throughout this report we point to those economies
Madrid14 where a potential Grexit may have a greater impact than others, but the
economic scenario underlying our occupancy market forecasts was created
Milan15 at a time when the probability of Grexit was less than 50%. As such, the
assumption in this report is that Greece will remain inside the Eurozone,
Munich16 with the alternative scenario outside the scope of this publication.
Paris17
Stockholm18
Central & Eastern Europe
Bratislava20
Bucharest21
Budapest22
Istanbul23
Moscow24
Prague25
Warsaw26
Office Forecast Data Table 27
Contacts28
CUSHMAN & WAKEFIELD 1
EUROPEAN OFFICE
FORECAST 2015-2017
WHAT’S IN STORE FOR
EUROPEAN OFFICES
In a period of high pricing in the European real estate markets,
investors into office real estate will be questioning if there is
enough momentum in the occupier market over the next few “In Western Europe, 12 out
years to support the current pricing levels found in the core real
estate markets around Europe. Indeed, in recent years, parts of of 13 surveyed markets are
Europe have experienced relatively sluggish tenant activity by
historical standards – occurring in stark contrast to the buoyant anticipating some rental
QE-fuelled investment market. growth over the next 3
The amount of office space completed across the main markets in Europe has risen
over the last 12-18 months, but with increasing amounts of pent-up demand also
years, with 10 of these likely
being satisfied, tighter supply levels will follow with a continued decline in the overall
European vacancy rate expected. This is supported by the fact that only a quarter of
to see rises higher than the
the 20 markets surveyed reported an increase in vacancy between now and the end of 10-year average.”
2017, and all are marginal apart from Moscow, Warsaw and Istanbul – the reasons for
this are explained later in the report. In addition, cities such as Brussels and
Amsterdam, for example, are seeing older stock removed from the market and are
being converted into alternative uses such as residential premises and hotels.
Prime office space in particular will see a shortage as new, high-quality space is
removed from the market with speed, bolstered by the number of occupiers
continuing to upgrade their premises before supply falls further. This trend is exerting
12.0%
additional upward pressure on headline rental figures, spurred on by generally better
economic conditions. Some markets will see the withdrawal of incentives by landlords
before rental growth materialises. In addition, a larger proportion of the development London’s City is
pipeline has already been secured under pre-lease agreements, and with pre-let
activity climbing higher, new developments will not be able to help loosen the tight forecast to see double
vacancy of high-quality supply in many markets.
digit rental growth in
In Western Europe, the outlook is generally positive: 12 out of 13 surveyed markets are
anticipating some rental growth over the next 3 years, with 10 of these likely to see 2015, at 12.0%.
rises that are higher than the 10-year-average. This robust regional performance
highlights the building momentum of the occupier market in these Western locations.
Sustaining its strong trajectory, Dublin is forecast to see the highest rental growth in
Europe, at 15.4% per annum in 2015-17. The city experienced exceptional rental
acceleration in 2013-14 and H1 2015, supporting particularly strong growth rates in
2015, although deceleration is expected to occur in 2016-17. While Ireland has
benefited from a pick-up in economic growth and a buoyant technology sector, what’s
really fuelling Dublin’s skyrocketing growth is the lack of development that occurred
during the country’s downturn. As demand returns to the market, supply cannot keep
up, helping to consistently lift rental rates.
The Spanish markets of Madrid and Barcelona are the 2nd and 3rd best performers,
respectively, in the forecast 2015-17 period. Similarly to Dublin, Spain’s office sector has benefited
from economic recovery driving improvements in occupier demand during a period when office
development activity is low, helping to fuel office rental growth.
2 CUSHMAN & WAKEFIELD
London is going from strength to strength as supply constraints in the
City intensify. Combined with a robust occupier market, rents are
climbing and are forecast to reach 12% growth in 2015. Frankfurt is “Momentum in the European office
also performing well, with falling quality space availability and a pick-up
in demand supporting positive rental growth. Paris, on the other occupier market continues to
hand, is facing some challenges as a faltering economy over the past
two years has dampened business sentiment and, consequently, slowed be positive, with the southern
the occupational market. Occupiers are now shelving expansion plans
to focus on cost cutting and the rationalisation of their space.
European economies as well as
The only market in Western Europe not expected to have positive London and Stockholm the stand-out
office rental growth over the next three years is Brussels, with a
forecast rate of -0.6% per annum. This negative growth is underpinned performers. However, there are also
by a below-average economic performance as well as the fact that
many decentralised / peripheral areas in the city are better placed to
some supply-driven concerns that
satisfy large-scale requirements due to the wider availability of space.
As such, it is likely that CBD office take-up volumes will be limited.
are beginning to emerge in certain
In Central and Eastern Europe, the outlook is generally less positive markets, particularly Central &
than Western Europe with three out of the seven markets surveyed
expecting rental falls over the next three years (Warsaw, Istanbul
Eastern Europe and also London.”
and Moscow). Five of those markets are forecast to have lower rental James Young
growth over the next three years compared to the ten-year average, Head of EMEA Off ces, Cushman & Wakef eld
a consequence of new net supply outstripping new net demand.
EUROPEAN OFFICE RENTAL GROWTH FORECAST (2015-17)
20
3 year forecast average 10 year historical average
15
10
Prime rental growth (% pa)
5
0
-5
-10
Dublin
Barcelona
Madrid
Stockholm
London: City
Munich
Paris: CBD
Lisbon
Frankfurt
Luxembourg
Amsterdam
Milan
Prague
Budapest
Bratislava
Bucharest
Brussels
Istanbul
Warsaw
Moscow
Source: Cushman and Wakefield
CUSHMAN & WAKEFIELD 3
EUROPEAN OFFICE
FORECAST REPORT
This excess development activity across the CEE region that we are
forecasting may be partly a response to the increased liquidity caused
0.8%
by quantitative easing. As pricing is pushed higher by the weight of
investment capital searching for yield, higher returning opportunities
further up the risk spectrum begin to look more appealing. Given the
relatively healthy economic performance of many of the CEE
economies over recent years and the positive outlook, developers and
investors have started construction or obtained planning on projects
that total more than expected occupier demand. The amount of new Budapest and Prague are
supply now looks like it may slow rental growth or even lead to a
decline in some locations over the next three years. forecast to see the strongest
The best performing CEE markets are expected to be Prague and rental growth in the CEE region
Budapest, albeit with just 0.8% per annum rental growth each. In
Prague, this modest rental growth is likely to be back loaded with
in 2015-17, at 0.8% per annum.
stability over the next few years, while Budapest is set for some
moderate increases in 2015-16 on the back of little rental movement
seen recently. The weakest rental growth outlook is for Moscow at
-7% over 2015-17, where the much publicized sanctions and the low oil
price have taken their toll on business prospects and occupier demand.
EUROPEAN OFFICE SUPPLY DEMAND BALANCE (2015-17)
12
Forecast demand is
greater than supply Western Europe Central & Eastern Europe
10
Net absorption as % stock - 3 year forecast average
1 Milan 11 Budapest
2 Lisbon 12 Brussels
8 3 Amsterdam 13 Moscow
4 Paris: CBD 14 London: City
5 Madrid 15 Bratislava 19
6 Barcelona 16 Luxembourg 20
6
7 Stockholm 17 Prague
8 Dublin 18 Warsaw
9 Munich 19 Bucharest
18
4 10 Frankfurt 20 Istanbul
16 17
8 15
2 6 11
5 10 12
2 Forecast supply is
9 14
47 13 greater than demand
1 3
0
0 2 4 6 8 10 12
Source: Cushman and Wakefield Net additions as % stock - 3 year forecast average
4 CUSHMAN & WAKEFIELD
WESTERN
EUROPE
CUSHMAN & WAKEFIELD 5
EUROPEAN OFFICE
FORECAST 2015-2017
AMSTERDAM
NETHERLANDS
ECONOMIC OUTLOOK AMSTERDAM OFFICE VACANCY RATE & PRIME RENT
The Dutch economy expanded by 0.4% in Q1 2015, the fourth 390
Forecast
24
consecutive quarter of growth but a slowdown on the final
quarter of 2014 (0.8%). As real wage growth has improved, 380
22
consumer confidence has picked-up, which alongside a
positive net export trend is providing a boost to economic 370
performance prospects. Growth is expected to be 1.8% in 20
2015, up from 0.9% in 2014, before dropping back slightly to 360
1.5% per annum over 2016-17.
Prime Rent (€ psm pa)
Vacancy Rate (%)
18
350
The Amsterdam economy emerged from two years of contraction in
2014 registering growth of 1.2%. Improvements in financial and business
340
services employment are forecast, with growth expected to average 16
1.6% over the next three years having been just 0.2% per annum over
330
the last five years. Job creation is expected to be largely concentrated in 14
business services.
320
Dutch inflation was 0.6% year-on-year in April 2015, continuing its 12
movement upwards following the low reading of 0% in January 2015. As 310
unemployment continues to fall, average earnings increase and the low oil
price impact begins to fall out of the numbers, it is likely that inflation will 300 10
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
continue to increase, reaching 1.1% by end-2015 and 1.5% by end 2017.
As an open economy – where exports account for almost 90% of GDP – Prime Rent (€ psm pa) Vacancy Rate (%)
the Netherlands is more vulnerable than most to adverse external Source: Cushman and Wakefield
conditions, which makes both the growth trajectory for the Eurozone as
well as a resolution to issues surrounding Greece particularly important.
OFFICE MARKET OUTLOOK
KEY TRENDS
Demand for high-quality office space in Amsterdam is
improving. Indeed, there is the beginnings of a shift away Gradual recovery
from occupier activity driven by lease extensions and space
rationalisation towards activity that is increasingly
of Amsterdam’s office
underpinned by new requirements as occupiers register market underway
their interest in the market.
Office schemes along the South Axis command the highest rents
across Amsterdam, reflecting not only the high quality of space here
but also the easy accessibility and good transport links. Rents are Incentive packages
currently at €370/sq.m/year, and while incentive packages are largely continue to be
being withdrawn, they are still supporting headline rents to an withdrawn as market
extent.
conditions improve
Vacancy for quality space across the city is around the 6% mark,
despite being in the double digits for Amsterdam as a whole.
However, a large proportion of this is outdated space and is slowly Expanding internet
being renovated or removed from the market and converted into companies
residential units. This, alongside a recovery in the Dutch economy,
will help to boost take-up levels along the South Axis. Activity is
are driving demand
expected to be driven by the technology sector as occupiers here
increase their footprints, resulting in positive net absorption and
acting as a lever to positive rental growth.
Developers are anticipated to increase their willingness to commit
to speculative construction, but this will be on a select basis only for
the foreseeable future and only after detailed due diligence.
6 CUSHMAN & WAKEFIELD
BARCELONA
SPAIN
ECONOMIC OUTLOOK BARCELONA OFFICE VACANCY RATE & PRIME RENT
The Spanish economy continued its impressive recovery in 28
Forecast
15
Q1 2015, recording quarterly growth of 0.9% and marking the
seventh straight quarter of expansion. Business services and 26
manufacturing are performing well, with the latter in 13
particular boosted by Euro depreciation. The labour market 24
is also improving, with unemployment at 23% down from a
peak of 26%. GDP is forecast to grow by 2.8% in 2015 which 22 11
would be the strongest annual number since 2007.
Prime Rent (€ psm pa)
Vacancy Rate (%)
20
The Barcelona economy is estimated to have grown by 1.5% in 2014,
9
following three years of contraction. Growth in financial and business
18
services employment was 1.7% in 2014 which is forecast to accelerate to
3.7% in 2015 before dropping back to around 2% per annum in 2016-17.
16 7
Spain has suffered from deflation since mid-2014, with the April 2015
reading at -0.7%. Although deflation is likely to remain for the majority of 14
2015, by the end of the year some inflationary pressure is expected to 5
re-emerge. The 2016-17 forecast is for inflation of around 1%. 12
A key downside risk to the Spanish outlook is the election this year. 10 3
Two of the four main parties support a reversal of the landmark labour
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
reforms of 2012 that are widely accredited with helping to turn around
the labour market and promote job creation. Prime Rent (€ psm pa) Vacancy Rate (%)
Source: Cushman and Wakefield
OFFICE MARKET OUTLOOK
The Barcelona office market appears to be on the road to
recovery after a period of stagnation. Prime rents in the KEY TRENDS
CBD ticked up at the beginning of 2015 and are expected to
increase by 3.1% over the course of the year. This is
bolstered by improvements in the economy supporting Healthier market
healthier occupier demand levels as well as dwindling
amounts of quality supply – particularly as construction balance
was reined in following the Global Financial Crisis. expected over 2-3 years
This situation is reflected by the fact that, in 2014, only two buildings as fundamentals improve
were under construction totalling 6,500 sq.m in the decentralised
area of the city, both of which were pre-let and reached completion
in Q1 2015. However, the beginning of 2015 saw four schemes break Low development
ground – albeit only one building is being developed in the city centre likely to persist over the
with completion expected in 2017. forecast period
The low level of new supply –combined with a growing trend in the
city center for space transformation from office to residential and
hotel use – is expected to cause a lack of supply in the future. The
subsequent decline in the vacancy rate, as excess supply is absorbed,
Space transformations
will see competition increase amongst occupiers looking to secure in the city centre
space in the city centre. As a result, headline rents are expected to placing downwards
see upward growth across the forecast period. pressure on quality space
An increase in new tenants entering the market will also support
healthier rates of positive net absorption and push vacancy rates
down to around 6.8% in 2019: a level not seen since the middle
of 2008.
CUSHMAN & WAKEFIELD 7
EUROPEAN OFFICE
FORECAST 2015-2017
BRUSSELS
BELGIUM
ECONOMIC OUTLOOK BRUSSELS OFFICE VACANCY RATE & PRIME RENT
Belgium’s GDP growth was estimated at 0.3% in the first 290
Forecast
11.5
quarter of 2015: a continuation of the modest performance
experienced throughout 2013 and 2014 and just below the 280
Eurozone average of 0.4%. Household confidence improved
11.0
during the first part of 2015, and this is likely to drive 270
consumption over the remainder of the year, taking
economic growth to around 1.5%. This would be the 260
strongest annual growth rate since 2011.
Prime Rent (€ psm pa)
Vacancy Rate (%)
10.5
250
Economic expansion in Brussels was estimated at 0.6% in 2014,
which was double the pace achieved in 2013 but modest in a European
240
context. Financial and business services employment has increased 10.0
by 0.8% per annum on average over the last five years. Over the next
230
three years, employment in these areas is forecast to grow by 1.5%
per annum, with job creation focused on the professional and
220
administrative sectors. 9.5
Inflation in Belgium was 0.4% in April 2015 having re-emerged from four 210
consecutive months of deflationary readings. The energy component of
inflation fell by 10% over the year to March 2015. The forecast for end 200 9.0
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
2015 is for 1% rising to around 2% in 2016 and 1.5% in 2017.
A loss of competitiveness has been a major issue for Belgium’s export Prime Rent (€ psm pa) Vacancy Rate (%)
sector due to wage indexation and high non-wage labour costs – the Source: Cushman and Wakefield
danger is that this becomes a long-term problem.
OFFICE MARKET OUTLOOK KEY TRENDS
The low level of available quality supply in Brussels is acting
as a support to headline rents, which have been stable at
€275/sq.m/year for the last 18 months. This is, however, Incentives
masking the attractive incentive packages that landlords are
offering to tenants in a bid to limit void periods. supporting
headline rents
On the flip side, it is also stimulating some churn of space in the
Brussels market as, although the decision making process remains
lengthy, a growing number of companies are using the current
conditions to upgrade their office space in what remains a tenant-led
environment. Public sector
In addition, further space is due to complete in 2015 and, while 76% remains a key driver of
in the CBD Leopold area has already been secured under pre-let demand
agreements, there is still some speculative space coming through.
This, coupled with the fragile state of the economy and slow
recovery of the overall market, has subdued demand levels
particularly from new occupiers and will dampen any prospects of
Lack of available
rental growth. Indeed, rents are anticipated to decline over the next Grade A space
12-18 months before seeing positive growth again in 2017, diminishing rental
underpinned by a strengthening in the occupier base and a fall in growth prospects
vacancy. These factors combined are expected to further squeeze
the already limited amount of Grade A space in the central
submarkets of the capital.
8 CUSHMAN & WAKEFIELDDUBLIN
IRELAND
ECONOMIC OUTLOOK DUBLIN OFFICE VACANCY RATE & PRIME RENT
Ireland’s recovery is continuing, with GDP growth of 4.8% 800
Forecast 24
in 2014’s the strongest performance since the onset of the
financial crisis, underpinned by a strong export sector. 22
700
Labour market conditions are strengthening, and this combined with
falling consumer prices is providing a welcome tonic to the still highly 20
indebted households. GDP growth in 2015 is forecast to be 3.7%,
600
holding at this rate in 2016 before dropping back slightly to 2.9% in 2017. 18
Prime Rent (€ psm pa)
Vacancy Rate (%)
Dublin’s GDP is estimated to have grown by 4.5% in 2014, driven by solid
performances from information & communications as well as the 500 16
financial, professional and administrative services. Indeed, financial and
business services employment increased by 2.2% in 2014 – the strongest 14
rate since 2007 – but this is expected to moderate to 1.6% per annum 400
over the next three years.
12
Ireland has been in deflationary territory since January 2015, with the
300
latest reading at -0.7%. Inflation is expected to gradually pick-up during 10
2015, ending the year at 1.4% before increasing to 1.6% in 2016 and 2.2%
in 2017. 200 8
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
Ireland’s economy is forecast to be one the fastest-growing in the EU
again this year, with the ECB’s programme of quantitative easing Prime Rent (€ psm pa) Vacancy Rate (%)
expected to help boost the export sector. Further, the impact of a
Source: Cushman and Wakefield
weaker Euro should help to cost competitiveness relative to key export
markets in the UK and US.
OFFICE MARKET OUTLOOK KEY TRENDS
Dublin’s real estate market continues to move from
strength to strength, underpinned by the robust economic
recovery that is positively impacting business confidence Landlord favourable
and rising levels of employment. city centre
The occupational market is firmly in the hands of the landlord as at least for the short term
there remains a dearth of speculative development. Across the
capital, there are only three new schemes which are under
construction: two have already been earmarked, and the remaining
one has just restarted following a standstill. Even allowing for Strong rental growth
buildings under renovation, the space available is inadequate for the
supported by low
demand registering interest in taking space.
construction volumes
The lack of supply is a mounting issue as the option for expanding
companies to move into larger premises is no longer realistic in some
areas – indeed, finding suitable space is potentially of more concern
for tenants than rents. Signs of deferred expansion and satellite
offices around Dublin already exist.
IT sector dominates
the market, particularly
Strong rental growth has been seen over the past few years and the
from US firms
situation is not expected to change. Rents are forecast to grow until
at least the end of 2017, when additional schemes are expected to
come onto market and help ease the pressure on rents somewhat.
CUSHMAN & WAKEFIELD 9EUROPEAN OFFICE
FORECAST 2015-2017
FRANKFURT
GERMANY
ECONOMIC OUTLOOK FRANKFURT OFFICE VACANCY RATE & PRIME RENT
The German economy expanded by 0.3% in the first quarter 40
Forecast 19
of 2015, which was marginally lower than the Eurozone
average of 0.4% and was a slowdown on the 0.7% growth 39
17
recorded in the final quarter of 2014. However, the
38
expectation is that economic growth will pick-up during the
remainder of 2015, driven by consumption as real wages 37
15
continue to grow at a robust pace and the minimum wage
boosts lower income households.
Prime Rent (€ psm pa)
Vacancy Rate (%)
36
13
Export growth is also expected to improve thanks to rising demand
35
from the rest of the Eurozone and a weaker Euro – particularly
beneficial given Germany’s high share of non-European exports. GDP 34
11
growth is forecast to be 2% in 2015, dropping to just below 2% by 2017.
Frankfurt’s financial and business services employment growth is 33 9
forecast to be 0.7% in 2015, down from 0.9%n 2014, and is expected to
32
decelerate further in 2016-17. This slowdown reflects the already low
7
unemployment rate in Germany and the tight labour market, meaning 31
employment is unlikely to continue growing at the pace seen in the
post-global financial crisis (GFC) recovery period. 30 5
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
Inflation in early 2015 was slightly stronger than expected. After the
deflationary reading of -0.3% year-on-year in January, inflation has Prime Rent (€ psm pa) Vacancy Rate (%)
steadily increased to 0.5% as at April 2015. This has resulted in forecasts Source: Cushman and Wakefield
being upgraded to 0.5% for the year-end, rising further to around 1.5%
in 2016-17. Fears of “bad deflation” becoming entrenched in the
Eurozone have now receded.
Political instability in Ukraine and Greece, a further slowdown in China KEY TRENDS
and disappointing growth in the Eurozone are the main risks to growth.
Several larger
OFFICE MARKET OUTLOOK deals in the pipeline
Frankfurt’s office market registered a solid start to the bolstering a solid office
year in terms of occupier activity with 88,000 sq.m let in Q1 market in 2015
2015, although this was largely due to a 32,000 sq.m owner
occupier deal by Deutsche Vermögensberatung AG.
As speculative construction is reined in and some older buildings are Office vacancy
removed from the market – with some being converted into forecast to decrease
alternative uses such as hotels and residential spaces – the amount of
available space declined in early 2015. The 10.9% vacancy rate for the going forward
total city is now at the lowest it has been for 12 years and will
continue to fall further, largely for quality office floorplates. Indeed,
this lack of quality space is supporting rental levels of €37/sq.m/ Frankfurt CBD
month: the highest across the country that have remained
unchanged since the latter half of 2013. Limited quality supply
keeping prime rents
Despite an increase in the availability of development financing and a
rising numbers of developers dusting down previously shelved plans,
highest in Germany
construction is still on a selective basis. Coupled with improvements
in the occupational market, headline rents are anticipated to come
under an upwards pressure, with levels rising slowly over the next
five years to potentially reach €40/sq.m/month.
10 CUSHMAN & WAKEFIELDLISBON
PORTUGAL
ECONOMIC OUTLOOK LISBON OFFICE VACANCY RATE & PRIME RENT
The Portuguese economy expanded by 0.4% in Q1 2015, 22
Forecast 14
the fourth consecutive quarter of recovery. Exports have
been the biggest contributor to growth, with government
21
consumption continuing to act as a drag on the overall 13
performance. The fact that Spain is performing well and is
Portugal’s largest export market – accounting for a fifth of 20
merchandise exports – is positive news for the economy. 12
In 2014 annual growth was 0.9% which is expected to almost
Prime Rent (€ psm pa)
Vacancy Rate (%)
double to 1.7% in 2015 before leveling off at a modest, but 19
healthy, 1.4% per annum over 2016-17. 11
Lisbon’s economy is estimated to have grown by 0.7% in 2014 following 18
three years of contraction. Financial and business services employment
10
growth was strong in 2014 at 4.5%, although this is expected to reduce 17
to 2.3% in 2015 but is nonetheless positive news for office demand.
Portuguese inflation was at 0.4% year-on-year in April 2015, the fastest 9
16
since mid-2013, helped by the improving Eurozone outlook and the
modest rebound in energy prices. This provides further support to the
view that Portugal is unlikely to fall into a period of sustained deflation 15 8
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
this year. The forecast for end-2015 is 0.4%, gradually increasing to above
1% in 2017.
Prime Rent (€ psm pa) Vacancy Rate (%)
A significant risk to the outlook remains deflation. Although fears have Source: Cushman and Wakefield
subsided recently, an external shock could trigger a return to deflation
via lower growth and confidence, which given Portugal’s high public and
private debt, would represent a serious problem.
KEY TRENDS
OFFICE MARKET OUTLOOK
The initial signs of a recovery in the Lisbon office market
seen in 2014 where reaffirmed in Q1 2015, with occupier
Recovery is likely
activity reaching 29,300 sq.m. Overall performance is now as supply declines,
on much firmer ground than twelve months ago, with not demand improves and
only the number of deals gaining pace but the average size rents rise
of deals increasing as well.
A proportion of this activity can be attributed to the popular trend
of consolidation by companies into a single location, as well as Falling vacancy
existing occupiers taking advantage of the current tenant-favourable as construction
market before the balance begins to turn in favour of the landlord moderates
and rents come under upwards pressure.
Headline rents have held firm at €18.50/sq.m/month since 2011 and
are expected to stay at this level until at least the middle of 2016 at
the earliest. However, with the amount of sought-after quality space Lack of space for
becoming increasingly scarce on the back of improving demand from larger tenants
a broad range of occupiers – and requirements from new market
entrants are reactivated – a positive upswing in rents is anticipated, could push supply
potentially by 3.0% by the end of 2016. pipeline forwards
Thereafter, further rises are forecast but at a slower rate as market
fundamentals rebalance themselves. Previously postponed
developments may be revived in a bid to address the quality supply
challenges, but substantial pre-lets will need to be in place before
construction commences. This is likely to instigate further vacancy
rate falls as the supply of new completions is moderated.
CUSHMAN & WAKEFIELD 11EUROPEAN OFFICE
FORECAST 2015-2017
LONDON
UNITED KINGDOM
ECONOMIC OUTLOOK LONDON OFFICE VACANCY RATE & PRIME RENT
The UK economy expanded by 0.3% in Q1 2015 – lower than 80
Forecast 11
had been expected and the weakest quarterly figure in more
than two years. This is likely to be a temporary dip, with 75
healthy real wage growth, private consumption and higher 10
70
frequency survey based measures all pointing to stronger
expansion. GDP is forecast to accelerate by 2.6% in 2015, 65
remaining around that rate during 2016-17. 9
Prime Rent (€ psm pa)
Vacancy Rate (%)
London has been a stand out performer in Europe over recent years 60
and 2014 was no different, recording output growth of 3% underpinned
55 8
by the performance of professional and business services, administrative
services and retail trade. Financial and business services employment is 50
expected to grow by 3.5% in 2015, which is slightly down on the 5.9%
7
growth in 2014 but nonetheless a strong year in prospect. 45
UK inflation dipped below zero in April 2015 (-0.1%), the first time
40
inflation has fallen on an annual basis since 1960. The impact of low oil 6
prices played its part, with air and sea fares all reducing as companies 35
passed on the savings to consumers. Later in 2015, as the oil effects
recede, inflation is likely to pick-up, ending the year at around 1% and 30 5
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
reaching nearly 2% by 2017.
The main risk to this outlook is the timing and impact of further Prime Rent (€ psm pa) Vacancy Rate (%)
austerity. The newly elected Conservative government has committed Source: Cushman and Wakefield
to returning the UK public finances into positive territory by the end of
this parliament, but as yet, the scale or impact of the government
cutbacks that will be required in order to achieve this is unknown. The
second main risk is Britain’s renegotiation on EU membership and the KEY TRENDS
referendum that has been promised following that in 2017; indeed, the
uncertainty surrounding this decision is bad news for business.
Rises in pre-lets
OFFICE MARKET OUTLOOK supported by low
Supply levels across the City market declined over the first supply levels
quarter of 2015 due to a combination of a buoyant occupier
market and low levels of development completions. In
particular, Media & Tech companies – together with
Banking & Financial occupiers – are driving demand in Strongest start to
the City market.
the year
However, many occupiers face the reality of a temporary shortage in terms of leasing
of supply in 2015. While there is anticipated to be 3.2 million sq.ft of
activity since 1998
speculative space under construction in the 2015-2017 period – along
with 3.0 million that is already pre-let – no more than 282,000 sq.ft of
speculative additions to stock is expected this year (10% of the 2015 Rising rents
pipeline). Consequently, vacancy rates will follow suit, with a notable across the City, with
improvement expected before the end of 2015 helping to frontload stronger growth in
rental growth that could possibly enter double-digit growth in 2015.
emerging areas
Prime headline rents are expected to remain on a growing path until
2018, although the pace of growth will be moderate from 2016
onwards once the development market regains some of its former
strength. However, given the growing occupier appetite for
prelettings, new supply is likely to get absorbed relatively quickly.
12 CUSHMAN & WAKEFIELDLUXEMBOURG
LUXEMBOURG
ECONOMIC OUTLOOK LUXEMBOURG OFFICE VACANCY RATE & PRIME RENT
After a solid recovery in 2013 and 2014, growth is expected to 50
Forecast
8
ease slightly in 2015 to 2.6%. This marks an upgrade to
previous forecasts, however, and the majority of indicators 45 7
remain upbeat. Ongoing recovery in the Eurozone should
offer a significant boost to the Luxembourg economy given its 40 6
close ties with the rest of the continent. Economic growth is
expected to further accelerate to 2.9% per annum over
2016-17. Short-term and medium-term prospects for 35 5
Prime Rent (€ psm pa)
Vacancy Rate (%)
Luxembourg are bright, with growth likely to remain
significantly ahead of most Western European countries. 30 4
Luxembourg’s financial and business services employment growth is
expected to average 2% per annum over the next three years which is 25 3
slightly below the impressive growth of 2.8% seen over the last five
years. Job creation is likely to be strongest in the real estate and the 20 2
administrative and support sectors.
Inflation has been hovering around zero over recent months after a 15 1
brief period of deflation. Akin to many parts of Europe, inflation is
expected to pick-up slightly during 2015 as the low oil price effects start 10 0
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
to fall out of the statistics. CPI is forecast to be 0.5% by end-2015,
increasing to around 2% in 2016-17.
Prime Rent (€ psm pa) Vacancy Rate (%)
Downside risks are mainly external; any further tension between Russia Source: Cushman and Wakefield
and EU could impact exports, while a deeper crisis in Greece could
damage financial markets across Europe, a sector which is integral to
Luxembourg’s economy.
KEY TRENDS
OFFICE MARKET OUTLOOK
Take-up levels in Luxembourg’s office market were robust Limited quality space
in Q1 and are expected to remain positive throughout the
year. This is bolstered by some sizeable deals by the supporting rental
European Commission which, at the time of writing, are in growth after 2016
negotiation stages and expected to complete before the
end of June.
In addition, ongoing demand from financial institutions and business
services companies will continue to support activity levels, with the Nearly 40% of
focus very much on central areas of the capital. Prime rents have, so development
far, remained stable at €45/sq.m/month in the CBD and €33/sq.m/ in 2015-2017 is pre-let or
month in Kirchberg, and these levels are expected to stabilise
for owner-occupation
despite more robust occupier activity as demand and supply
fundamentals remain in balance over the next 18 months.
However, there are signs that quality space is becoming increasingly Highest vacancy
scarce, and as such more schemes are expected to break ground, in the decentralised
bringing the potential to nudge the overall vacancy rate up – albeit
still at low levels – to peak in 2016 at just over 6%. Thereafter
submarket
vacancy is anticipated to decline as demand strengths despite a rise
in the amount of construction delivering new space to the market.
The fall in availability will go hand in hand with positive rental
growth, although this is expected to be gradual and confined to the
central areas of the city. In the decentralised and peripheral areas of
the capital – where activity is more muted and the markets suffer
from an overhang of supply –any rental uplifts will be limited.
CUSHMAN & WAKEFIELD 13EUROPEAN OFFICE
FORECAST 2015-2017
MADRID
SPAIN
ECONOMIC OUTLOOK MADRID OFFICE VACANCY RATE & PRIME RENT
The Spanish economy continued its impressive recovery in 45
Forecast 13
Q1 2015, recording quarterly growth of 0.9% and marking the
seventh straight quarter of expansion. Business services and 12
40
manufacturing are performing well, with the latter in
11
particular boosted by Euro depreciation. The labour market
is also improving, with unemployment at 23% down from a 35 10
peak of 26%. GDP is forecast to grow by 2.8% in 2015 which
would be the strongest annual number since 2007.
Prime Rent (€ psm pa)
Vacancy Rate (%)
9
30
The Madrid economy is estimated to have grown by 1.7% in 2014, a
8
relatively strong expansion after two years of contraction. Financial and
business services employment grew by 1.4% in 2014 with job creation 25
7
likely to accelerate to 3.5% in 2015 before dropping back to around 2%
per annum in 2016-17. Professional and administrative services 20
6
especially are expected to perform strongly.
5
Spain has suffered from deflation since mid-2014, with the April 2015
15
reading at -0.7%. Although deflation is likely to remain for the majority 4
of 2015, by the end of the year some inflationary pressure is expected to
re-emerge. The 2016-17 forecast is for inflation of around 1%. 10 3
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
A key downside risk to the Spanish outlook is the election this year.
Two of the four main parties support a reversal of the landmark labour Prime Rent (€ psm pa) Vacancy Rate (%)
reforms of 2012 that are widely accredited with helping to turn around Source: Cushman and Wakefield
the labour market and promote job creation.
OFFICE MARKET OUTLOOK KEY TRENDS
The positive momentum that was building over the
course of 2014 in the Madrid office market – buoyed by an
expanding economy – is now translating into more robust New requirements
levels of occupier activity, with approximately 110,000 sq.m reactivated
let in Q1 2015. helping to erode
Demand is currently focused on the CBD, and with quality, efficient excess space
space here limited, rents have been nudging up over the past four
quarters, albeit supported somewhat by incentive packages that
have yet to see any substantial withdrawals. However, with a
rebalancing of the market underway along with declining vacancy, Rental growth
improving demand and the fact that tenants are willing to pay to supported by low levels
secure space in the CBD, a 4.0% uplift in prime rents is anticipated of development activity
by the end of 2015.
Further, some occupiers seeking to consolidate their operations are
struggling to find the larger floorplates that meet their needs, and
thus they are investigating options in the peripheral areas of the Rising demand
CBD where the likelihood of satisfying these requirements is higher underpinned by
for now. The situation is likely to be exacerbated in 2016 and 2017,
linked to the restrained development activity and the conversion of economic recovery
some projects from offices to residential. Indeed, this is forcing
some tenants – whom are priced-out of central locations – to
consider quality space further afield. While some new developments
are being started, this is unlikely to dampen rental growth, which is
expected to remain positive until after 2017, although the rate of
growth will slow.
14 CUSHMAN & WAKEFIELDMILAN
ITALY
ECONOMIC OUTLOOK MILAN OFFICE VACANCY RATE & PRIME RENT
The Italian economy expanded by 0.3% in Q1 2015, ending a 610
Forecast 14
three-year recession. This is a positive development that is
expected to continue over subsequent quarters, albeit with 13
very modest rates of growth. In 2015, GDP is forecast to 510
expand by 0.5% increasing to 1% by 2017. It’s worth noting that 12
output is currently around 10% lower than in early 2008,
putting the size of the recovery task into context: Italy will still 410
underperform compared with the main Eurozone countries 11
Prime Rent (€ psm pa)
Vacancy Rate (%)
over 2015-17.
310 10
Milan has been consistently outperforming the national economy over
recent years, a pattern which is likely to continue over the next three
years. Financial and business services employment grew by 1.5% per 9
210
annum over 2010-14, which will be maintained over this period, albeit
with moderately stronger growth in 2015 before trailing off slightly in 8
2016-17. The best performing sector is likely to be professional and
110
administrative services. 7
Italian inflation fluctuated around zero in the first part of 2015, but there
is likely to be some modest inflationary pressures starting to re-emerge 10 6
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
later in 2015 as the low oil price effects start to recede. CPI is forecast
to end 2015 at 0.4% before rising gradually to 1% by 2017.
Prime Rent (€ psm pa) Vacancy Rate (%)
A potential upside risk surround the implementation of structural Source: Cushman and Wakefield
reforms. If the current government can accelerate these reforms then
this would aid the recovery. Introduced in March 2015, the new labour
reforms are yet to take effect but may provide a boost going forward.
KEY TRENDS
OFFICE MARKET OUTLOOK
The Milan office market had a positive start to 2015, with
prime locations in the capital seeing significant demand Stabilised rents
from both local and international occupiers. Short-term in the short-term before
prospects for the occupational market are stable, with gradual growth from 2016
landlords taking a flexible approach to lease negotiations.
Incentives remain commonplace, and Milan will continue to witness
occupiers upgrading their space or streamlining their operations
into a single HQ building. Flexible, modern space is therefore Demand improving
expected to remain in good demand and, given the general lack of from both local and
such space, a rise in pre-lease contracts in new developments or international corporates
substantial refurbishments is anticipated.
In addition, only just over a quarter of all space under construction is
being built speculatively – a trend that is expected for the
foreseeable future as developers remain cautious in the current Gradual return
market. All of these factors, plus the tight planning restrictions in the of new development and
city centre, will support headline rental growth which will gather
momentum as 2016 approaches.
refurbishment activities
CUSHMAN & WAKEFIELD 15EUROPEAN OFFICE
FORECAST 2015-2017
MUNICH
GERMANY
ECONOMIC OUTLOOK MUNICH OFFICE VACANCY RATE & PRIME RENT
The German economy expanded by 0.3% in the first quarter 38
Forecast 11
of 2015 – while only marginally lower than the Eurozone
average of 0.4%, it represents a slowdown on the 0.7% figure 36
recorded in Q4 2014. The expectation is that economic 10
growth will pick-up during the remainder of 2015, driven by 34
consumption as real wages continue to grow at a robust pace
and the minimum wage boosts lower income households. 32 9
Prime Rent (€ psm pa)
Export growth is also expected to improve thanks to rising demand
Vacancy Rate (%)
30
from the rest of the Eurozone and a weaker Euro: particularly beneficial
8
given Germany’s high share of non-European exports. GDP growth is
28
forecast to be 2% in 2015, dropping back to just below 2% by 2017.
Financial and business services employment growth in Munich is 26 7
forecast to be 1.3% in 2015, down from the 5 year average of 2.6%, and is
expected to decelerate further in 2016-17. The slowdown reflects the 24
already low unemployment rate in Germany and in Munich especially. 6
The already tight labour market implies employment is unlikely to 22
continue growing at the pace seen in the post-global financial crisis
(GFC) recovery period. 20 5
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
Inflation in early 2015 was slightly stronger than expected. After the
deflationary reading of -0.3% year-on-year in January, inflation has Prime Rent (€ psm pa) Vacancy Rate (%)
steadily increased to 0.5% as at April 2015. This has resulted in forecasts Source: Cushman and Wakefield
being upgraded to 0.5% for the year-end, rising further to around 1.5%
in 2016-17. Fears of “bad deflation” becoming entrenched in the
Eurozone have now receded.
Political instability in Ukraine and Greece, further slowdown in China KEY TRENDS
and disappointing growth in the Eurozone are the main risks to growth.
Strong demand
OFFICE MARKET OUTLOOK
eroding vacancy and
Q1 2015 was another strong quarter for the Munich office supports rising rents
market, with occupier activity reaching 182,000 sq.m
(including owner occupier deals). This is the strongest
performing first quarter seen for seven years, 22% above
the five-year average and 12% above the ten-year average.
Broad range
The city benefits from a broad range of occupiers spanning a
of occupiers
plethora of industry sectors, and this goes some way in supporting
the stability that the city is known for and its ability to weather real bolstering activity
estate cycles reasonably well. Munich’s prime rent is €33.50/sq.m/
month, and despite high pre-let rates and lively demand for
high-quality office properties in the CBD, levels remained static
IT sector pushing
over Q1 2015 after a rise in Q4 2014.
CBD demand
However, a shortage of supply – particularly in the city centre prime Firms moving into CBD as
segment – will exert more pressure on rents and is expected to
translate into headline rental rises before the end of 2015 equating can now pay higher rents
to a 3.2% upswing. This will be bolstered by not only a decline in the
overall amount of new completions but also by the steady decline of
speculative construction, which has been a significant factor
influencing vacancy rate falls over the past five years.
Furthermore, the strength and attractiveness of Munich as a
location is pushing those occupiers seeking larger floorplates to
move sooner than anticipated in order to secure appropriate space
for their needs as supply dwindles, further supporting robust
occupier activity.
16 CUSHMAN & WAKEFIELDPARIS
FRANCE
ECONOMIC OUTLOOK PARIS OFFICE VACANCY RATE & PRIME RENT
French GDP expanded by 0.6% in the first quarter of 2015, 850
Forecast 8.5
stronger than anticipated due to a boost to consumption
from oil related factors, which have now diminished. It is 8.0
800
unlikely that this degree of strength will be maintained into
subsequent quarters, albeit annual growth is estimated to 7.5
be 1.4% for 2015, which would be the best year since 2011. 750
However, this performance would still see France slightly 7.0
underperforming compared with the Eurozone as a whole
Prime Rent (€ psm pa)
Vacancy Rate (%)
(1.6% forecast for 2015). 700 6.5
Next year, the expectation is for slightly faster growth of 1.7% as the
6.0
investment climate improves and depreciation of the Euro feeds 650
through into moderately healthier export growth. However, the
5.5
growth gap with the Eurozone will not begin to close until 2018. 600
Financial and business services employment growth in Paris has averaged 5.0
of 0.7% per annum over the last five years, and a very modest increase to 550
0.8% is expected over the next three years. This stability is unlikely to 4.5
lead to significantly more office space demand overall, but the two
sectors that are expected to see the best job creation over the next 500 4.0
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
three years are information and communications and business services.
French inflation improved slightly in March 2015 with a zero reading: the Prime Rent (€ psm pa) Vacancy Rate (%)
first non-negative reading since December 2014. As oil prices have Source: Cushman and Wakefield
gradually increased, the likelihood of sustained deflation during 2015 has
receded. The forecast for end 2015 is 0.6% increasing to 1.5% by end 2017.
The main downside risks to the economic outlook are uncertainty
stemming from fiscal tightening and a slowdown in the implementation of KEY TRENDS
structural reforms that will enhance France’s competitiveness. In addition,
further risks remain in the strained relationship between the EU and
Greece as well as any potential deceleration in the Eurozone’s recovery. Space erosion
of both Grade A and
the best secondhand
OFFICE MARKET OUTLOOK
space in Paris CBD
Prime rents in Paris’ CBD have been declining for the past
two years as economic growth faltered and occupiers
shelved expansion plans to focus on cost cutting and the
rationalisation of their space. Net absorption
to turn positive
Lease renewals were commonplace, and absorption fell into
negative territory as new requirements held back from registering as demand improves
an interest in entering the market. However, as business sentiment
improves, rising activity should follow suit, although progress is
expected to be slow.
Despite the scarcity of Grade A space – which is unlikely to be
Sustained demand
resolved in the short-term – rental levels are not anticipated to gain from high-added value
the lost ground until the latter half of 2016 or even early 2017. This is activity sectors
likely to come to fruition when a more sustained pick-up in demand
impacts market dynamics, with a number of significant lease expiries
anticipated, and a healthier balance between market fundamentals is
apparent. Therefore, 2015 is expected to be the year of transition
before a modest recovery is seen in the Paris office market in 2016.
CUSHMAN & WAKEFIELD 17EUROPEAN OFFICE
FORECAST 2015-2017
STOCKHOLM
SWEDEN
ECONOMIC OUTLOOK STOCKHOLM OFFICE VACANCY RATE & PRIME RENT
The Swedish economy expanded by 2.1% in 2014 following a 6300
Forecast 21
very strong end to the year. GDP growth in Q4 stood at 1.1%
quarter-on-quarter, driven by solid consumer spending and 19
investment. Exports also improved over this period as 5300
demand from the rest of Europe strengthened. Following 17
a stream of better than expected macro news, many
economists raised both the GDP growth and inflation 4300
forecasts for 2015, with the former now expected to grow 15
Prime Rent (€ psm pa)
Vacancy Rate (%)
by 2% in 2015, 2.8% in 2016 and 2.2% in 2017.
3300 13
Stockholm’s economy is estimated to have grown by 3% in 2014,
outperforming most other European cities. Financial and business
services employment has increased by 2.4% per annum on average over 11
2300
the last five years and is forecast to grow by 1.9% per annum over the
next three, with job creation focused on the information and 9
communication sector as well as administrative services.
1300
Sweden has been dipping in and out of deflation since the end of 2012, 7
which has led the Riksbank to move interest rates into negative
territory (-0.25%) while continuing QE. Further policy action, real wage 300 5
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
growth and a reduction in the impact from low oil prices are likely to
push inflation gradually upwards over the coming quarters to 1% by the
Prime Rent (€ psm pa) Vacancy Rate (%)
end of 2015. CPI is forecast to move above the 2% target rate in 2016-17.
Source: Cushman and Wakefield
An important risk for Sweden is the level of household indebtedness,
which was at 174% of GDP in Q4 2014. Plans to introduce tighter
repayment rules for new mortgages could help. The strength of the
Swedish kroner has also been an issue over recent times given the KEY TRENDS
openness of the Swedish economy and the importance of exports to
growth; indeed, exports account for 45% of GDP.
Very low vacancy
OFFICE MARKET OUTLOOK for quality space will
Robust economic growth and solid employment expansion persist for the next 2-3
are buoying healthy occupier demand levels, which are years
eroding the overhang of space in Stockholm’s office
market. As a result, vacancy rates are declining and rental
levels rising as occupiers continue to compete for space. Strong demand
has triggered speculative
Indeed, the strength of demand across a broad range of occupiers
has seen the market shift its balance from being in the hands of the
construction in quality
tenant to one where landlords are withdrawing incentive packages suburban areas
and occupiers are willing to pay the asking rents. However, the focus
is very much on quality space in Stockholm’s central areas, although
some more peripheral locations such as Solna are seeing rising levels
of interest as they can offer the much sought-after space that Positive rental growth
expanding companies are after. expected across most
The tight development pipeline will see availability dwindle further
submarkets
and is expected to hit 7.2% in 2017 – half the level seen in 2006. This
is despite the new supply deliveries that will not pick-up until late
2016/early 2017, most of which are expected to be pre-let before
construction is complete.
All of these factors will contribute to an imbalance between demand
and supply and further support rental growth, which is expected to
be strongest in 2015 at around 10%-11%. After this, the rate of
growth is expected to slow but remain in positive territory between
3.6%-2.5% per year.
18 CUSHMAN & WAKEFIELDCENTR AL
& EASTERN
EUROPE
CUSHMAN & WAKEFIELD 19EUROPEAN OFFICE
FORECAST 2015-2017
BRATISLAVA
SLOVAKIA
ECONOMIC OUTLOOK BRATISLAVA OFFICE VACANCY RATE & PRIME RENT
The preliminary estimate of Q1 GDP growth was 0.8% 22
Forecast
16
quarter-on-quarter, reflecting an annual rate of 2.6%, which
maintains the impressive economic performance of the last 14
two years. The economic performance has been driven by a 20
healthy domestic economy as the labour market improves 12
and the consumer sector continues to gain momentum. The
outlook for the Slovak Republic is very healthy with 2.8% 18
growth expected in 2015 rising to just above 3% in 2016-17.
Prime Rent (€ psm pa)
10
Vacancy Rate (%)
Financial and business services employment in Bratislava has averaged
16 8
1.6% growth over the last 5 years, but a modest improvement in the rate
of job creation is anticipated over 2015-17 at an average of 1.9% per
annum. This is likely to support office demand going forwards, 6
14
particularly in the information and communications sector as well as
business services. 4
The Slovak Republic has been in deflation since December 2014, with 12
the most recent reading at -0.2% year-on-year. Given that inflation is 2
slow and earnings are set to rise by over 4% in 2015, consumers are
likely to benefit considerably from higher real disposable incomes which 10 0
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
should push up inflation in the medium term. Inflation is forecast to
improve to around 1% year-on-year by year-end 2015 before gradually
Prime Rent (€ psm pa) Vacancy Rate (%)
rising to 2.5% by the end of 2017.
Source: Cushman and Wakefield
OFFICE MARKET OUTLOOK
The Bratislava office sector has seen a shift away from KEY TRENDS
occupier activity driven primarily by space rationalisation
to one that is now seeing some expansion-supported
demand. However, this is still limited as are the prospects
of positive rental growth; prime rents are anticipated to Rental growth holds
remain at the current €15.00/sq.m/month until at least the until labour market
end of 2016 when a more healthy balance between supply
improvements take hold
and demand is expected.
40,000 sq.m of new space is expected to be delivered over the
course of 2015, most of which is already reserved by pre-lease
agreements, and despite falls in the vacancy rate it remains Rising demand
stubbornly in double digits. Developers remain reluctant to commit
to speculative construction as occupiers still have a plethora of
due to robust shared
choice to suit their requirements. Indeed, realising income streams service / BPO sectors
to cover development costs is still not obvious, and this is having a
secondary impact in terms of securing development funding.
More significant improvements are expected from 2017 and beyond
as the economy expands further and more noticeable advancements
Little new supply
are seen in the labour market, which will pave the way for more with limited speculative
sustained levels of occupational activity. Progress, however, will be development
gradual, and in the short term prime rents are unlikely to change.
The decreasing vacancy at the quality end of the market will see the
gradual withdrawal of incentives continue and some speculative
developments break ground, along with marginal positive rental
growth. Nevertheless, rents at the end of 2017 are expected to still
be around 30% off their 2007 peak.
20 CUSHMAN & WAKEFIELDYou can also read
