The FINANCIAL - European office rental growth in Q2 2016 strongest in five years

European office rental growth in Q2 2016 strongest in five years

European office rental growth in Q2 2016 strongest in five years

The FINANCIAL -- Rents on prime office assets across Europe grew by 1.5% quarter-on-quarter in Q2 2016 compared to 0.7% in Q1. 

This represents the strongest increase in the past five years, outpacing the Americas and Asia Pacific regions. Stockholm witnessed the strongest growth in Europe, up 9.4% quarter-on-quarter, followed by Berlin, up 6.3%, according to JLL.

"Office demand is proving resilient in many of the world's dominant commercial real estate markets despite increased political and economic uncertainty which is leading to corporate occupiers striking a more cautious tone," said Jeremy Kelly, Director in Global Research Programmes, JLL. "Underlying market fundamentals are sound and corporate demand is holding up well, notably in continental Europe. Stockholm in particular was Europe's star performer of the quarter, with a spike in demand boosting rents by 9.4%."

Berlin (+6.3%) also displayed strong rental growth in Q2, leading the German cities, where demand continues to be well ahead of the long-term average. In Paris (+3.4%), limited new supply and more robust take-up pushed up prime rents for the fourth consecutive quarter. In Southern Europe, the momentum in the market recovery has continued in Milan (+2.0%), while Barcelona (+3.7%) and Madrid (+0.9%) maintained their solid run.

Following the EU referendum, headline rents have so far remained unchanged in London compared to Q1 2016. Rent-free periods may soften as occupiers look to negotiate more flexible terms with greater lease flexibility. The Brexit vote has so far had little effect on rental growth outside the UK.

Rental growth in Europe in H2 2016

Looking to the second half of the year, a period of steady rental increases for prime European offices is anticipated, with rental growth of 2.5% - 3% in Western Europe set to outperform the 10-year average over the next few years. Stockholm and Madrid are expected to be the region's high performers over 2016.

"In London, rents and incentives may come under pressure in certain sections of the market, although low vacancy rates coupled with an increasingly diverse occupier base will act to cushion the impact of weaker sentiment," added Jon Neale, Head of UK Research, JLL. "Our priority over the second half of the year will be to monitor occupier activity and other developments, although it is unlikely that any real conclusions over longer term market implications can be made until the nature of 'Brexit' becomes more apparent as we move into 2017. For the time being, however, our research indicates that the vast majority of occupier deals in progress at the time of the referendum are still continuing as planned."



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