European Office rents soften slightly
Prime office rents softened slightly on aggregate (Office Index -0.3%) as the limited number of upward and downward changes nearly cancelled each other out.
Prime rental decreases were recorded in: Brussels (-5.0%), Madrid (-1.9%), Barcelona (-1.4%) and Paris (-1.2%).
Rents increased in: Luxembourg (+5.3%), Stockholm (+2.4%) and Hamburg (+2.1%).
All other Index markets were unchanged over the quarter.
With the ECB’s emergency loan and Greece's second bail-out in early March, there are signs that the financial strains in the Eurozone economy are lessening. However, the picture for the region remains mixed. Among the core countries, the UK, Germany and the Nordics are likely to show stronger economic growth. Struggling economies such as Greece, Portugal, Spain and Italy will see sharp falls in activity and office demand remains impacted by occupiers downscaling, renegotiating leases as well as public sector cuts. Modern office space in key inner-city locations remains scarce and this is likely to support prime rents in 2012 in core centres.
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European Office Property Clock Q1 2012
Q1 2012
Prime Rent (EUR/sqm/pa)
Prime Rental Change(% y-o-y)
Vacancy Rate(%)
These sliders provide an indication of where an office market is in relation to other markets in terms of prime rent, prime rental growth and overall vacancy rate at the end of the quarter
Note:
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This diagram illustrates where Jones Lang LaSalle estimate each prime office market is within its individual rental cycle as at
end of March 2012. |
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Markets can move around the clock at different speeds and directions |
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The diagram is a convenient method of comparing the relative position of markets in their rental cycle |
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Their position is not necessarily representative of investment or development market prospects. |
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Their position refers to Prime Face Rental Values |
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Definitions
Prime Rent (read)
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Prime Rent represents the top open-market rent that could be expected for a notional unit of the highest quality and specification in the best location in a market, as at the survey date.
- Office Sector
The rent quoted normally reflects prime units of over 500 m² of lettable floorspace, which excludes rents that represent a premium level paid for a small quantity of space.
The Prime Rent reflects an occupational lease that is standard for the local market. It is a face rent that does not reflect the financial impact of tenant incentives, and excludes service charges and local taxes. Stockholm is the only city where it is market practice to quote the rent as Prime Effective Rent, therefore the rent is including incentives (i.e. rent free periods as well as relocation costs, tenant fittings, etc.) The Prime Rent represents Jones Lang LaSalle’s market view and is based on an analysis/review of actual transactions for prime office space, excluding any unrepresentative deals. Where an insufficient number of deals have been made for prime office space, an assessment of rental value is provided by reference to transactions generally in that market adjusted accordingly to equate to prime.
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Prime Yield (read)
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Represents the best (i.e. lowest) “rack-rented” yield estimated to be achievable for a notional property of the highest quality and specification in the best location in a market, as at the survey date. The property should be let at the prevailing market rent to a first class tenant with an occupational lease that is standard for the local market. The prime initial net yield is quoted, i.e., the initial net income at the date of purchase, expressed as a percentage of the total purchase price, which includes acquisition costs and transfer taxes.
The Prime Yield represents Jones Lang LaSalle’s “market view”, based on a combination of market evidence where available and a survey of expert opinion.
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Prime Office Capital Value (read)
Represents the top open-market capital value (per square metre) that could be expected for a notional office property of the highest quality and specification in the best location, as at the survey date.
Prime capital values are derived from prime office rents and prime office yields (net initial): Capital Value = (Prime Annual Rent / Prime Yield) * 100. This method will provide notional gross capital values, i.e. purchase price including acquisition costs and transfer taxes.
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Annual Office Net-Absorption (read)
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Represents the change in the occupied stock within a market during one year. Net Absorption is calculated on the basis of “top-down” estimates of occupied stock derived by subtracting vacant office stock from the total office stock of that market. Mothballed stock, i.e. floorspace held vacant and not being offered for letting, usually pending redevelopment or refurbishment, is excluded.
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