European office markets show some vigour, despite continued economic uncertainty
European Office Rental Index up over the quarter: The downward trend in European prime office rents ceased over Q1, with the European Office Index up by 0.3% q-on-q - the first positive quarterly movement in a year. Prime rents increased in Lyon (+10.5%), Dublin (+6.7%), Frankfurt (+3.0%) and London (+2.6%). These positive movements were sufficient to offset prime rental decreases witnessed in Milan (-4.0%), Warsaw (-2.0%) and Paris (-1.3%).
Low economic growth, weak labour markets, austerity and uncertainty continue to impact European office markets. The renewed uncertainties caused by the Cypriot crisis and an inconclusive general election in Italy, translated into declining business confidence across the region. Investors, developers and occupiers alike continue to act very carefully.
Aggregate rental growth for 2013 is forecast to be only moderate, but positive. While there remains a downward risk in select Southern European cities, these markets are close to the bottom of their cycle. At the opposite end of the spectrum, relatively healthy markets such as Germany and the Nordics continue to lose momentum, but still show rental growth potential due to the clear shortages of high quality stock within core locations. Forecasts for 2014 see more pronounced rental growth as a return in confidence and a sustained economic recovery is expected to filter through to the labour and office markets.
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