No attribution requiredDemand for Europe’s Grade A office market stays strong
Grade A office demand in Europe remains strong, according to Colliers, despite a weakening economic outlook.
March 19, 2019Real Estate
Occupiers’ thirst for Grade A office stock shows no sign of being impacted by a weakening economic outlook, according a Colliers’ report on EMEA city offices. A dearth of Grade A space is driving a rise in pre-letting activity, with high pre-leasing rates at new-build developments intensifying the pressure on vacancy. In Munich, over a third of 2018 take-up was given over to pre-leases, while in London, a strong pick-up in Grade A absorption in 2018 was boosted by development completions pre-let to major occupiers. In many markets in CEE, pre-letting activity comprises a major component of take-up: in Sofia, for example, 41% of transactions in 2018 were pre-leases. “We expect pre-letting to remain a key component of transactional activity in 2019, with levels set to exceed the long-term trend,” states Colliers.
Constrained availability of office space, including Grade A offices, actually led to a 2% decline in take up across EMEA markets in 2018. However, in some markets take-up activity accelerated included Lisbon, Dublin and Madrid - “markets which are later in the cycle”, explains Colliers. In Germany, take-up decreases were observed in Berlin and Frankfurt, impacted by supply shortages, particularly of Grade A stock. Looking at rental growth, the fastest-growing EMEA markets in 2018, compared year-on-year to 2017, were Porto (19%), Oslo (18%), Kiev (14%) Barcelona (13%) and Berlin (12%).
In terms of market outlook, the report suggests that supply shortages of office space may ease slightly in some geographies where an acceleration in pipeline deliveries is projected in 2019-2020, resulting in a stabilisation of rental rates. However, “the volume of deliveries in most Western European cities is still too low to meet current demand, supporting the outlook for stable or slight increases in rents.”
Co-working and flexible office transformation
The office market is undergoing a transformation with the rise of co-working operators and flexible offices. In Paris, 25% of transactions in 2018 were by co-working operators (19% by WeWork). “The impact of the ongoing evolution of this niche could impact overall take-up levels over time,” the report states, “as flexible options provide for a more efficient use of space on a needs basis.” This trend is already apparent in Barcelona, where 2018 take-up was impacted by the fast growth of co-working operators.
Another trend noted is a surge in renovation and refurbishment activity, particularly in markets where the development pipeline is under pressure. Noteworthy activity is taking place across Europe: in Rome, one of the main transactions of 2018 involved a CBD office building which is now undergoing extensive refurbishment, having been illegally occupied for a long time; and in Athens, following a long period of stagnation, supply shortages are driving tenants to invest in refurbishments. Developers have also become less risk-averse, with a corresponding rise in speculative construction and a slight improvement in development activity in 2018.
Trends in Europe’s office markets, including the future of flexible offices, will be discussed further at GRI Offices 2019 in November in London.
Constrained availability of office space, including Grade A offices, actually led to a 2% decline in take up across EMEA markets in 2018. However, in some markets take-up activity accelerated included Lisbon, Dublin and Madrid - “markets which are later in the cycle”, explains Colliers. In Germany, take-up decreases were observed in Berlin and Frankfurt, impacted by supply shortages, particularly of Grade A stock. Looking at rental growth, the fastest-growing EMEA markets in 2018, compared year-on-year to 2017, were Porto (19%), Oslo (18%), Kiev (14%) Barcelona (13%) and Berlin (12%).
In terms of market outlook, the report suggests that supply shortages of office space may ease slightly in some geographies where an acceleration in pipeline deliveries is projected in 2019-2020, resulting in a stabilisation of rental rates. However, “the volume of deliveries in most Western European cities is still too low to meet current demand, supporting the outlook for stable or slight increases in rents.”
Co-working and flexible office transformation
The office market is undergoing a transformation with the rise of co-working operators and flexible offices. In Paris, 25% of transactions in 2018 were by co-working operators (19% by WeWork). “The impact of the ongoing evolution of this niche could impact overall take-up levels over time,” the report states, “as flexible options provide for a more efficient use of space on a needs basis.” This trend is already apparent in Barcelona, where 2018 take-up was impacted by the fast growth of co-working operators.
Another trend noted is a surge in renovation and refurbishment activity, particularly in markets where the development pipeline is under pressure. Noteworthy activity is taking place across Europe: in Rome, one of the main transactions of 2018 involved a CBD office building which is now undergoing extensive refurbishment, having been illegally occupied for a long time; and in Athens, following a long period of stagnation, supply shortages are driving tenants to invest in refurbishments. Developers have also become less risk-averse, with a corresponding rise in speculative construction and a slight improvement in development activity in 2018.
Trends in Europe’s office markets, including the future of flexible offices, will be discussed further at GRI Offices 2019 in November in London.
