European Office Property Clock

European office rents stable but sentiment remains fragile

Despite ongoing economic uncertainty, prime rents in Europe remained broadly unchanged at the end of 2011 with the European Office Index increasing by a mere 0.4% on the previous quarter.

Of the 24 Index markets:

Four cities saw rental increases: Rotterdam +2.6%, Berlin +2.4%, Düsseldorf +2.1%, Paris +1.3%

Rents dropped in two Spanish markets: Barcelona -1.3%, Madrid –1.0%

All other Index markets were unchanged

The Eurozone debt crisis continues to weigh down economic growth prospects across the region. Business and investor sentiment remains fragile and despite certain pockets of growth, key market indicators are likely to remain stagnant before conditions improve towards the end of 2012. This assumes, of course, a meaningful solution to the Eurozone crisis is implemented.

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European Office Property Clock Q4 2011

Note: This diagram illustrates where Jones Lang LaSalle estimates each prime office market is within its individual rental cycle as at end of December 2011. Markets can move around the clock at different speeds and directions. The diagram is a convenient method of comparing the relative position of markets in their rental cycle. Their position is not necessarily representative of investment or development market prospects. Their position refers to prime face rental values. Markets with a “step pattern” of rental growth do not tend to follow conventional cycles and are likely to move between the “hours” of 9 and 12 o’clock only, with 9 o’clock representing a jump in rental levels following a period of stability.

Definitions

Prime Rent (read)

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.

Prime Yield (read)

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.

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.

Annual Office Net-Absorption (read)

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.