Strong leasing activity boosts EMEA office rents

CB Richard Ellis Group Inc.’s forthcoming market report - EMEA Offices Market View report – indicates that high levels of occupier demand continued in most of Europe in the third quarter (Q3) of 2007. The major European markets generated 2.5 million sq m of aggregate leasing this quarter, the third successive quarter in which leasing exceeded 2 million sq m. This boosted the total for the year to date to 7.5 million sq m, an increase of 10% over the same period last year.

Germany produced the most notable increases in leasing activity in Q3 as office demand has risen in line with the improving economy. Frankfurt, in particular, saw a marked acceleration, with take up growing at 192% quarter–on–quarter. Düsseldorf and Berlin also recorded significant quarterly increases of 100% and 32%, respectively. Elsewhere, although some of the larger markets such as London and Paris saw relatively flat activity against very strong second quarter levels, demand for office space was generally robust in Q3.

Increased demand and continued reductions in office availability have resulted in higher rents. The CB Richard Ellis EU-27 Rent Index rose by 3.1% in the third quarter, to take the year over year rate of growth to over 11%. A number of markets saw prime rents rise at a faster pace, including Warsaw (by 65% year over year), Stockholm (by 19% year over year), and Helsinki (by over 13% year over year). The major European markets such as London, Madrid and Paris are also seeing double-digit rental growth.

Anna Starczewska, Senior Analyst at CB Richard Ellis’ EMEA Research and Consultancy, said: “We are witnessing healthy levels of leasing activity and demand for office space across Europe is on track to reach last year’s figure of 10 million sq m. Overall demand characteristics in Europe remain generally strong.”

The CB Richard Ellis EU-15 Index of prime office yields rose marginally in the third quarter to just over 4.8%, an increase of five basis points since the second quarter. Yields in the major U.K. office markets rose by between a quarter and half a point. Elsewhere in Europe, yields were generally stable.

Richard Holberton, Director of CB Richard Ellis’ EMEA Research and Consultancy said “Our research shows that this is the first actual increase in yields in four years, even though the contribution of yield movements to capital value growth has been diminishing in recent quarters. We remain encouraged as occupier demand levels are still strong and provide significant support to the market at a time when rental rates are not expected to grow as quickly as they have been in recent quarters.”