European office vacancy rates increased by an average of 30bps to 5.8% during Q2 2020, according to the latest research by Savills.
However, office vacancy rates remain at historic lows and well below the equilibrium of c9%, separating rental growth from decline, says the international real estate advisor.
Mike Barnes, Associate European research at Savills, says: “Among the most undersupplied cities in Europe remain Berlin (1.2%), Paris CBD (2.0%) and Munich (2.3%). Speculative development pipelines are still relatively limited and therefore we do not expect any large increases in vacancy rates in core markets.
“The undersupply of office space across Europe has continued to apply upward pressure to prime headline rents which have grown by an average of 3% over the 12 months to Q2 2020, despite rent free periods increasing by 1%.”
Matthew Fitzgerald, Director, European Cross Border Tenant Advisory at Savills, says: “There has been a lack of transactional activity due to the uncertain environment, however we expect to see an uptick in activity as occupiers start to deal with impending lease event projects that have been put on hold.
“Average European rent free periods currently stand at 9% of lease value, increasing marginally from 8.2% at the end of H1 2019. Following the lockdown period, landlords and tenants have been unable to agree on price points – only Amsterdam, London West End, London City and Warsaw have observed any marginal outward movement in incentives over the past 12 months. We anticipate that the weakening economic conditions could lead to further outward movement in incentives.”
‘We see a renewed appetite for European real estate from Korean investors, many of which are now looking to co-invest with European-based asset managers.’
Tris Larder, Joint Head of Savills Regional Investment Advisory EMEA, adds: “Despite a relatively modest first half year-on-year reduction in office investment volumes, one of the more noticeable trends has been a drop in cross border investment during H1 2020, largely due to a fall from Asian and US investment during travel lockdowns.
“We see a renewed appetite for European real estate from Korean investors, many of which are now looking to co-invest with European-based asset managers. US capital remained less active during Q2 2020 as French and German retail funds increased cross border activity, however, we expect a return of US investors during H2 2020 as more pricing clarity emerges and there is a return to relative value.”