No Change in Office Markets across the EMEA Region
In terms of prime rents and investment activity
According to Colliers International’s latest research, prime rental values for the office sector across the EMEA region are expected to remain flat. However, some of the weaker markers, outside of Europe’s core, will likely continue to see rents fall.
With broad economic stagnation in the EMEA region and no solution for the Eurozone crisis on the horizon, the majority of corporations will continue to take a cautious approach to any leasing activity. However, any declines in occupational demand will be counterbalanced by limited supply levels in most markets, therefore rental values across majority of the markets are expected to remain flat for the best space.
Mixed Occupational Behavior
Prime rents in core Europe remained stable and is some cases still saw small rises, such as Germany with demand for office space driven mainly by IT, consulting and manufacturing companies. London, Stockholm, Munich and Vienna are expected to witness increases in rental values as they enjoy stable GDP growth above national average and have good prospects for local labor markets, therefore stable occupational demand.
However, it was noticeable that rents in some major markets have fallen back. Geneva saw a marginal fall as strong Swiss Franc proves problem for economy. Main Central Eastern Europe markets of Prague and Warsaw both saw falls although their occupational markets do remain fairly active. Prime rental values in Athens have also dropped due to declining occupational demand and increase of the supply of disposable office space. Lisbon and Madrid are also expected to experience a further decline in rents as they struggle with difficult economic conditions.
Colliers predicts that due to economic uncertainty and lack of financing for secondary products investors will continue to focus their attention on prime office assets in prime locations only.
The level of investment transactions is expected to stay at current levels with the lack of quality product acting as a break on demand. Activity will continue to be focused on the UK, Germany, France and Nordics. Although a revival is also expected in the CEE region in the latter part of the year.
Prime yields across the vast majority of key EMEA centres are to remain stable, low bond yields in the major economies are tending to offset investors’ concerns regarding occupational prospects. Yet declining occupational demand and negative investors’ sentiment will likely to push up prime yields in peripheral markets such as Lisbon and Madrid. The market of Athens may follow the same pattern with yields moving upwards but the rate of increase will be difficult to be estimated due to the limited amount of deals and lack of transparency in the market. Specifically, office CBD yields have increased by 25 bts and 50 bts compared to six and twelve months ago respectively.
Outside of prime, secondary pricing remains unclear and transaction levels low, maintaining a vicious circle of uncertainty for all but the most opportunistic investor.
Closing, Katerina Dimou, Director | Office Services for Colliers International Greece quotes: “The investor interest that exist in Greece, is primarily driven from private opportunistic investors looking for office properties in prime locations with long leases and strong tenant covenants, to provide high returns on equity. In most cases though most were not ready to assume an all equity investment risk and are willing to bide their time, anticipating a period of less uncertainty in the market. The reduced probabilities of a Greek exit from euro zone combined with the injection of some € 44 billion can stimulate the investment market and improve psychology for transactions”.