Occupiers are experiencing increased lease flexibility, greater choice of premises and greater incentives in the European office market according to the latest research by CB Richard Ellis.
The report reveals that tenants are benefiting from current falls in leasing activity and the subsequent pressure that landlords are coming under to preserve cash flows and maintain capital values. Landlord flexibility has become essential as take-up across the main markets in Western Europe in 2008 declined to the levels seen in 2004-05.
Occupiers are also benefiting from the fall in office rents across Europe, with average rents declining by -2.5% in the EU-27 during the final quarter of 2008. This was driven by falls in Western European markets such as London and also in CEE markets including Moscow where recent rental growth is now being reversed.
Matthew Pullen, head of global corporate services EMEA, CBRE, said, “We anticipate that there will be pockets of new leasing activity as opportunistic occupiers who are in a position to break tenancies will seek to move to cheaper buildings or further consolidate their portfolio by taking additional space in an existing location. Other tenants will leverage their improved negotiating positions to upgrade office premises, securing attractive terms on buildings which might previously have been beyond their reach.”
The CB Richard Ellis EU-27 vacancy rate index has risen steadily from 6.7% in Q1 2008 to a figure of 7.5% at the end of Q4 2008. Vacancy rates in some of Europe’s larger markets, such as Milan and London, witnessed increases of over 2% in 2008, providing occupiers with improved access to quality premises.
Reduced investment into Europe’s emerging markets has brought the long-term stability of some cities into question, as reduced foreign demand and restricted local demand become insufficient to sustain growth. However, this supply is likely to present offshoring opportunities to organisations as they pursue cost saving targets. Further increases in the vacancy rate are expected in the first half of 2009. This is partly due to a rise in the supply of sub-leased space as some tenants decide not to occupy their pre-let offices.
Cyprus avoids recession
Cyprus’ economy avoided recession by a comfortable margin in Q4 2008, according to the latest “flash” estimate from the Statistical Service.
The economy grew on a seasonally adjusted basis by +0.6% over the previous quarter - the same rate as in the third quarter - despite some signs of slowdown, including rising unemployment and a contraction of retail sales in November.
Nevertheless, a growth rate of 0.6% is fairly slow for Cyprus. Compared with the same period of the previous year, real gross domestic product (GDP) grew by +3% in Q4, down from 3.5% in the third. For the whole of 2008, the GDP growth rate is estimated at 3.7%, compared with 4.4% in 2007.
The Statistical Service said that the deceleration was concentrated in financial intermediation (the banking sector) and real estate activities. It said that there was a “relatively moderate” deceleration in hotels and restaurants and in retail trade. On the other hand, activities in both construction and broad services “remained at a satisfactory level”.
French commercial assets fall -9.22% in 2008
The value of French commercial property assets fell -9.22% in 2008, according to the monthly EDHEC IEIF Commercial Property (France) Index, and overall performance (reinvested earnings) of -5.25% for 2008.
Pierre Schoeffler, senior advisor at IEIF, says: “The 2008 fall of nearly -10% in the value of commercial property assets comes after ten years of steady rises (+80% between 1997 and 2007). It took four years for prices to recover from the previous downturn. In the current economic cycle, the stock market has proven to be a leading indicator - SIIC prices began falling in 2007 and the Euronext IEIF SIIC France Index fell -21% that year. The monthly publication of the EDHEC IEIF Commercial Property (France) Index will allow those involved in the property and finance businesses to track very closely the dynamics of the performance of unlisted commercial property trusts in this particularly critical period we are entering.”
Noël Amenc, professor of finance and director of the EDHEC Risk and Asset Management Research Centre, said: “In a sector in which, more often than not, prices are estimated, the fact that the EDHEC IEIF Index is founded on real transaction prices gives this index a forward-looking dimension that is interesting in these times of crisis.”
Worldwide News
Global investment in commercial property decreasing
Global investment in commercial property could fall by -5% in 2009, after plunging 59% last year, according to Cushman & Wakefield (C&W).
Total investment in 2008 fell to $435bn from the 2007 record of $1,050bn, setting the lowest annual total since 2004, and is predicted to fall again this year to $412bn.
North America’s commercial property market suffered the steepest fall in investments in 2008 with a -73% drop to $116bn, causing the region to fall behind Europe and Asia as the top global investment destination.
As the world’s most popular investment target last year, Europe accounted for 41% of all transactions followed by Asia with 30%, according to Cushman, although investments fell -52% in Europe and -45% in Asia.
At the country level, the United States retained the top spot in 2009 by capturing 25% of all global investment, while China came in second with 12% of the total, overtaking the UK for the first time, according to Cushman. The UK accounted for 9% or $37.1bn of investments, while Japan and Germany took about 7% each.
London has lost its status as the world's most expensive office location for the first time in nine years.
Hong Kong and Tokyo overtake London
According to the new Office Space Across the World 2009 report from Cushman & Wakefield, Hong Kong and Tokyo are now the world’s two most expensive locations relegating London to third place.
The cost of occupying an office per year in Hong Kong now stands at €1,743sqm. Although rents in Hong Kong actually fell -4% in 2008, the much larger 23% fall in London’s West End pushed occupancy costs down further to €1,403sqm per annum. The cost of space in Tokyo now stands at €1,649sqm per annum, a fall of -19% in 2008.
Office Space Across the World 2009 compares office occupancy costs in 202 key locations in 57 countries around the world. Of these 202 locations, 58% showed rental growth in 2008, 26% saw stable rents and 16% showed a rental fall (compared with only 1% in 2007). Office rents globally rose on average by +3%, significantly below the +14% achieved in 2007 and the lowest growth rate since 2004.
South America was the best performing region with rental growth averaging +12% for the year. Western Europe was the poorest performing region with average rental growth of only +1%.
The impact of the global economic downturn has been felt in all markets although some were better placed to withstand declining occupier demand for space. The expansion of financial institutions, particularly the hedge funds, have driven up rents in London’s most prestigious West End market for the last few years but it has now felt the full impact of the credit and banking crisis. The fall in rents and weak UK currency, however, means that for overseas companies, London is now more affordable than it has been in years.
Australia’s Reserve Bank won’t lower interest rate to zero
Australia’s Reserve Bank will continue to lower interest rates, but is unlikely to cut to zero per cent because monetary policy is already working to stimulate the economy, according to Glenn Stevens, the RBA Governor.
Stevens did not rule out cutting the cash interest rate from its present 45-year low of 3.25%. But the RBA chief said official rates are unlikely to fall to zero, like in other countries, because the nation’s financial system and ability to pass on rate cuts is more sound.
Besa Deda, St George Bank’s chief economist, said rates were likely to fall to a record low of 2.25% in the current easing cycle. At this level, rates would still be higher than the US federal funds rates target range of zero to 0.25% and Japan’s benchmark rate of 0.1%.
Australia ’s cash interest rate of 3.25% is one of the higher such rates in the advanced world, even though it is at its lowest point since 1964.
