Regional economic disparities persist with Germany remaining the region's top performer while Southern European economies face more severe headwinds. Certain office market indicators for Q4 2011 show strengthening, but the renewed risks for the region worsening sentiment raise concerns over the traction of recent improvements. 

Mixed rental growth patterns leave European Office Index unchanged over the quarter. Prime rents increased
in Stockholm and The Hague (both 2.4%), Hamburg (2.2%) and Milan (1.9%) whereas rents decreased in Brussels (-3.2%), Dublin (-3.0%), Madrid (-1.9%) and Edinburgh (-1.8%). All other Index markets, including CEE cities, saw rents unchanged compared to the previous quarter.  Overall, the picture across the region remains mixed, which is clearly visible on the Jones Lang LaSalle property clock, which currently shows 16 markets at or before 6 o'clock and seven markets already at or past  9 o'clock.

Office/Industrial/Retail Space in Geneva in 2010

Increase of 22`000m2 of space since 2009 mainly due to Industrial and wharehouse premisses. Otherwise the commercial Market has proved to be resilient, in that vacancy levels in the Office Market remains static.

The majority of Europe's economies continue to recover - although with substantial differentials. This is reflected in the Q3 2010 rental clock. 14 of the 34 "clock markets" are now at or beyond 6 o'clock with the majority moving further through the "bottoming out" quadrant. Prime office rents continued to grow albeit at a slower pace:  the Jones Lang LaSalle Office Rental Index rose by a modest 0.7% over the quarter, driven by London, Moscow and Stockholm.

As economic growth returns, occupiers are increasingly committing to deals, although much activity remains driven by consolidation and churn. With 2.5 million sq m transacted in Q3 2010, office take-up decreased by 8% over the quarter. This is not unusual given the summer season and, compared to this time last year, take-up was 36% higher and only 5% below the five year average.

Further yield compression pushed capital values higher; the capital value index increased 4.7% over the quarter. Yields decreased in 13 out of 24 markets with Paris and Moscow both experiencing compression of 50 basis points. With rental levels comparably stable over the quarter, capital value growth in Q3 was largely driven by the changes in yields and this continued to result in positive growth in markets where occupational performance remained relatively weak.

Notes: This diagram illustrates where Jones Lang LaSalle estimates each prime office market is within its individual rental cycle as at end September 2010. 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.

Source: European Office Property