JLL Office Property Clock Q2 2017

Transcription

1 Research Report JLL JLL Office Property Clock Q

2 Q2 office leasing activity saw the highest take up in Western Europe since 2006 Q European office take-up was down marginally on Q (-3%), activity in Western Europe was up (+3% y-o-y). European office vacancy decreased by 20bp to 7.8% in Q2 2017, the lowest since Q The European Office Rental Index rose by 1.1% q-o-q in Q At 2.1%, annual European office rental growth continues to exceed the 10-year average of 1.2%. The clock diagram illustrates where JLL estimates each prime office market is within its individual rental cycle as at the end of June 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 2017 Jones Lang LaSalle IP, Inc. All rights reserved. 2

3 European Office Occupier Markets The Eurozone economy continued to outperform initial forecasts for this year. Meanwhile, election results in The Netherlands and France delivered decisive defeats for populist, euro-sceptic parties and reinforced EU unity. These economic tailwinds are in line with the overall office market performance, where leasing activity continues apace on the back of strengthening employment. Office Rents The European Office Rental Index rose by 1.1% q-o-q in Q2 2017, with 11 of the 24 Index markets seeing rental growth over the quarter (compared with 5 in Q1 2017). At 2.1%, annual European rental growth continues to exceed the 10-year average of 1.2%. Excluding the UK, rental growth reached 3.6% in Q2, highlighting intensifying occupier activity across mainland Europe. In London, prime rents remained unchanged in Q and are predicted to fall slightly by year-end as new completions apply upward pressure on vacancy. In Edinburgh, the highest Q2 takeup on record led to an increase in the prime rent (+3.2%). In Paris, prime rents fell by 0.7% in Q2, but such a minor, temporary adjustment is not unusual for this market and does not reflect a change in the positive economic sentiment witnessed over the past 18 months. Q2 rental growth was highest across the Benelux, led by Brussels (+9.1%), Luxembourg (+4.4%) and (+2.7%). This resulted from a tightening in Grade A supply and robust demand for prime space. Rental growth across Southern Europe also continued apace, with Barcelona (+2.3%), Madrid (+1.7%) and Milan (1.0%) seeing further uplifts. Stockholm prime rents show no signs of leveling off (+6.3% q-oq), as competition between occupiers for the limited space available intensifies. In Germany, prime rents increased in Hamburg (+2.0%) and Munich (+1.4%), but held stable in Berlin after a period of exceptional growth. Regardless, we expect further growth in Berlin by year-end. Elsewhere, prime rents fell in Warsaw (-2.1%) as supply remains elevated. Looking ahead, heightened occupier activity and limited development will continue to restrict the availability of high quality space on offer, driving up rents as a result. European prime rental growth is expected to total around 2.2% in Office Demand After an active Q1, robust occupier demand pushed European office take-up to 2.9 million sq m in Q While the total European aggregate was down marginally on Q (-3%), activity in Western Europe was up (+3% y-o-y). In London, active requirements by occupiers remained high over the last 12 months and Q2 take-up reached 259,000 sq m (+68% y-o-y), the second highest Q2 since The London West End office market was particularly active, with take-up of around 110,000 sq m. The serviced office market accounted for around 35% of this in response to increasing occupier demand for flexibility in space requirements. Elevated leasing levels in Paris as seen in Q1 slowed somewhat in Q2, with take-up reaching 502,000 sq m (-16% y-o-y). Uncertainty ahead of the French elections may explain some of this slowdown. However, we expect employment growth and positive corporate sentiment to push leasing up in H Activity in the German office market remained buoyant in Q2, but in some cases failed to match the levels witnessed in Indeed, Berlin (-10%), Hamburg (-7%) and Munich (-22%) each registered y-o-y declines. However, Frankfurt and Dusseldorf saw take-up increase by 32% and 19% respectively, taking the German Big 5 Q1 take-up to around 686,000 sq m (-3.7% y-o-y). Other notable Q2 performances included Edinburgh (+228% y-oy), Barcelona (+66% y-o-y) and Madrid (+60% y-o-y). We forecast European take-up to reach approximately 11.8 million sq m in 2017, as demand continues to expand on the Continent. Office Supply European office vacancy decreased by 20bp to 7.8% in Q2 2017, the lowest since Q Total Q2 office completions came to 981,000 sq m. While this is up 9% from a quiet Q1, it represents a 22% decline on the 10-year Q2 average. As usual, Paris (19%) and London (18%) accounted for a large share of new space. Brussels also saw a significant amount of new office space added to the market with 137,000 sq m completed in Q2. However, active (pre)letting meant that the vacancy decreased (-20bp to 8.8%). Robust leasing activity offset stronger development completions in most cities. In the Eurozone, 17 out of the 24 Index markets recorded a decrease in the vacancy rate. This fall was particularly strong in Dublin (-120bp to 7.7%), (-80bp to 7.8%), Madrid (-80% to 11.3%) and Luxembourg (-60bp to 8.6%). In Germany, Berlin and Munich now stand at 4.1% and 4.0% respectively, the lowest rates in Europe. As development activity is set to increase across the Big 5 German cities, vacancy rates are likely to stabilise towards the end of Other noteworthy vacancy moves in Q2 include the Dutch regional cities of Utrecht and The Hague, which saw vacancy drop by -220bp to 10.8% and -260bp to 7.1% respectively. Similar to, which recorded a significant decrease in vacancy over the last 2 years, Utrecht and The Hague now start to see a squeeze in supply as leasing activity picks up. With a more buoyant 3.2 million sq m in the H2 development pipeline, total 2017 completions are expected to reach 5.1 million, which is around 25% ahead of the 5-year average. At 5.2million sq m, 2018 will see more quality space added to the market, with the majority of the increase concentrated in London, Paris, Dublin, Berlin and Munich. European office vacancy is expected to remain stable at 7.8% in 2017, as higher completions are offset by solid leasing activity. Expansionary demand will keep vacancy rates on a downward trajectory across most of Western Europe, though London and Dublin will see a further increase as new schemes come on stream Jones Lang LaSalle IP, Inc. All rights reserved. 3

4 Prime European Office Rental Index (EUR / sq m pa) % Change Q Y o Y Q o Q % 1.1% Weighted Nominal Rental Trend, 1980 = 100 Prime Office Rents Q (EUR / sq m pa) London WE London City Geneva Paris CBD Zurich Stockholm Moscow Dublin Luxembourg Milan Frankfurt/M Oslo Munich Rome Manchester Edinburgh Istanbul Helsinki Madrid Berlin Dusseldorf Hamburg Lyon Brussels Kiev St. Petersburg Warsaw Barcelona Budapest Stuttgart Cologne Athens Copenhagen Prague Bucharest Lisbon ,200 1,500 1,800 Prime Office Rental Change Q (% Q-o-Q) Brussels Stockholm St. Petersburg Luxembourg Edinburgh Helsinki Rome Barcelona Stuttgart Hamburg Madrid Munich Milan Copenhagen Lyon Manchester London WE London City Kiev Istanbul Zurich Geneva Moscow Bucharest Lisbon Oslo Dublin Budapest Athens Frankfurt/M Dusseldorf Cologne Berlin Prague Paris CBD Warsaw Note: Q-o-Q rental change is based on the local currency Jones Lang LaSalle IP, Inc. All rights reserved. 4

5 Definitions Prime Rent Represents the top open-market rent that could be expected for a notional office unit of the highest quality and specification in the best location in a market, as at the survey date. The rent quoted normally reflects prime units of over 500 m² of lettable floor space, 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. 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. Take up Take-up represents floor space acquired within a market for occupation during the survey period (normally three-monthly). A unit is registered as taken-up when a legally-binding agreement to acquire the unit has been completed. Take-up includes floor space leased and sold for occupation, and the pre-lettings of floor space in course of development or prior to the start of construction. Annual Net-Absorption 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. floor space held vacant and not being offered for letting, usually pending redevelopment or refurbishment, is excluded. Vacancy Rate The Vacancy Rate represents immediately vacant office floor space, inclusive sub-lettings, in all completed buildings within a market as at the survey date (normally at the end of each quarter period), expressed as a percentage of the total stock Completions Completions represent floor space completed during the survey period (normally annually and projected forward by three years) within a market. Completions include both new development and refurbished accommodation that has been substantially modernised. An office is regarded as complete when the developer will undertake no further work until a tenant / occupier is secured. In the majority of instances this means that all main services are completed and suspended ceilings and light fittings are installed. Some developments are considered to be completed when they reach shell-and-core condition where the accommodation is to be marketed in that state. Future Completions Represents the total floor space of new and refurbished developments, either pre-planned, planned or under construction, that are expected to complete in a given year or the remainder of a current year (e.g. at Q for Q2+Q3+Q4 2017). The total volume contains developments of high completion probability which are usually already under construction, have obtained building permits / authorisation, or are considered for other reasons highly likely to be completed. JLL Alexander Colpaert Head of +31 (0) alex.colpaert@eu.jll.com Benjamin Russell Senior Analyst London +44 (0) benjamin.russell@eu.jll.com Tom Carroll Head of EMEA Corporate Research EMEA Corporate Research London +44 (0) tom.carroll@eu.jll.com Jones Lang LaSalle 2017 Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document is proprietary to Jones Lang LaSalle and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of Jones Lang LaSalle and shall be kept confidential. Reproduction of any part of this document is authorized only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorization of Jones Lang LaSalle. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof Jones Lang LaSalle IP, Inc. All rights reserved. 5