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Unparalleled Boom in Search for Office Space in Europe

11 December 2017

The Lisbon office market is expected to follow the trend in Europe. Total allocations in 2017 are expected to reach 150,000 sqm, and demand is expected to continue firm in 2018. Taking the current imbalance between supply and demand into consideration, high-quality renovations that are carried out on buildings located in central areas could also see a limited rise in prime rental yields.

The economy has been recovering since 2009, but the pace in the acceleration of growth increased recently, after 2016. According to the consultancy Worx, BNP Paribas Real Estate believes that this growth will deepen over the coming years, driven by demand.

However, the two most significant European markets, Paris and London, are showing behaviour that is contrary to the global trend. The Parisian market, after two years of growth, is now expected to fall over the next three years. On a more optimistic note, the market in central London is expected to begin to see a recovery from the Brexit-induced deceleration of the last years.

In contrast, strong economic fundamentals have led the German markets to reach, once again, new historic highs. Other cities like Milan, Rome, Amsterdam and Brussels have also seen growth, in a reflection of growing demand associated with the overall improvement in the European economic climate.

Once again, significant variations are expected among in the various individual national markets. Growth in Berlin is forecast to be limited to 2.2%, while Helsinki is expected to rise by 14.0%. These data reflect the differing momentum in demand and supply.

Focusing on the behaviour of the German market, German cities should maintain the current average prices and see a faster growth in rental yield levels.

In a statement to Worx, “it is clear that the cost of office space reflects patterns of unemployment and economic growth. In this sense, London and Paris will continue to be the most expensive cities regarding rents. The German cities, despite a fall in the unemployment rate, do not have the highest rents, but should nevertheless see some of the fastest increases in 2018; Berlin (7%), Frankfurt (4.2%), Hamburg (2.2%) and Munich (2%).”

With the growth in rents not expected to accentuate during 2018, a stable level of investment is expected to ensure that total returns do not turn out to be negative for most cities. A total average return of 5.8% per year is expected across Europe, of which 1.8% and 4.0% are related to capital growth and rental yields, respectively.

“One must also pay attention to particular cases that may contribute to a greater or lesser precision of forecasts, such as the situation in Catalonia, any measures that the European Commission may implement, and any uncertainties associated with the post-Brexit period,” the document reads.

Original Story: Diário Imobiliário

Translation: Richard Turner