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News Release


Rising Vacancy Puts Downward Pressure on Europe’s Office Rents

According to Jones Lang LaSalle’s Q2 2009 European Office Clock

According Jones Lang LaSalle’s Q2 2009 European Office Clock Report prime office rents declined by 4.6% over the quarter, and now stand on average 15.4% lower then Q2 2008. The Index, which is based on 24 markets, shows that Moscow witnessed headline rental falls of 30%, followed by Dublin (-18%) and Madrid (-10%) over the quarter. London has experienced a year-on-year fall in prime rents of -32% and potentially has now reached the peak of rental decline. The overall European vacancy rate increased 80 basis points to 9.3%.

Chris Staveley, Head of Jones Lang LaSalle’s Cross Border team, commented: “Despite early signs of improvements in economic and business confidence a significant proportion of occupiers across Europe are still reducing staff numbers and seeking to avoid the costs of relocation. While some tenants are looking to take advantage of current market conditions and secure high quality space in better locations, overall office demand remains low across Europe.”

Office leasing volumes in Q2 2009 increased 9% from the previous quarter to 2.1 million sq m but sit 35% below Q2 2008 levels and nearly 30% below the five-year average. Take up in Central and Eastern Europe (CEE) increased to 0.6 million sq m and now stands 14% above the five-year average. Some significant increases in take up over the quarter were also reported in larger western European markets, notably Brussels (+51%), Madrid (+46%) and London (+43%), though they are based on comparatively low absolute numbers.

Although completion levels across Europe remain 30% above the five-year average, few new office developments commenced during Q2 2009. Despite difficult leasing conditions 1.9 million sq m of space was completed and added to the market, but this represents a 10% decrease over the quarter with several projects being cancelled or postponed. In the CEE region the average vacancy rate increased significantly to 14.6%, the highest level since 1999, while the Western Europe average rate reached 8.8%. Dublin recorded the highest vacancy rate (21.2%), followed by Moscow (18%) and Budapest (15%). Luxembourg achieved the lowest vacancy rate (3.7%) whilst Paris , London and Warsaw (5,6%) were among the markets with vacancy rates below the European average.

“With another 4 million sq m of space due for completion this year and with office demand expected to remain weak vacancy rates are going to continue to increase further over the year - the overall European vacancy rate could exceed 10% by the year end”, concluded Staveley.

John Duckworth, Managing Director Central & Eastern Europe at Jones Lang LaSalle adds: “The first half of the year was a period of rapid rental readjustment in most CEE markets. Those markets most advanced in this process, and further around the face of the clock, demonstrate increased transparency and flexibility and as such are more likely to respond to positive conditions in the next few quarters. Interestingly for CEE, corporate demand - whilst weak in Q1/2 2009 - is beginning to return. The very fact that markets are readjusting is emphasising the cost benefits open to corporate investment in the region. This is one of the factors we see as a key driver to underpinning occupier demand, and ultimately a rental floor across the region”.