CYCLICAL DIFFERENCES BECOMING MORE EVIDENT ACROSS EUROPEAN OFFICE MARKETS
The European office market continued to display many of its recent traits in the third quarter - weak take-up, rising vacancy and falling rents - but with less deterioration on some aggregate measures, and more differentiation in trends across the main local markets.
Most notably the UK, having entered the downturn earlier and more steeply than most others, is beginning to show signs of improvement ahead of most other markets on a range of measures including take-up and rents.
In overall terms, European office take-up actually rose slightly in the third quarter, but is likely to show a decline of around 30% for the year as a whole.
Vacancy levels continue to rise in aggregate, although some markets recorded a reduction in the third quarter and others only a slight increase. Spain and CEE are the main areas where sharp rises in vacancy are still evident.
The scope for further rises in vacancy depends partly on the future development pipeline. Markets that are well advanced in the development cycle, such as London and Paris, will see marked reductions in new space delivery next year, in contrast to the key German markets. The current marked weakness in new construction starts will produce a more generalised slowing in new supply from 2011.
Prime rents generally continue to see downward pressure, although the scale of decline this quarter was modest by recent standards. Spain, Ireland and CEE are the areas still seeing the most acute downward pressure. Some of the core Western European markets - including London, Paris and Frankfurt - are either stable or now seeing only modest reductions.
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