Although austerity measures and concerns surrounding sovereign debt in European economies triggered a new wave of economic uncertainty and volatility in financial markets, positive signs increased in the office markets during quarter two 2010, according to Jones Lang LaSalle’s Q2 2010 European Property Clock.

Office take-up in Europe for Q2 2010 increased marginally to 2.6 million square metres, up six per cent on the previous quarter and 34 per cent on Q2 2009. 

Take up for H1 2010 is now 38 per cent higher than for the same period in 2009, having improved in both Western Europe and CEE up by 32 per cent and 73 per cent respectively over the same period.

Prime rental levels stabilised in the majority of locations in Q2 and the Office Index, based on the weighted performance of 24 markets, increased by 2.6 per cent quarter-on-quarter, building upon the growth seen during Q1 and showing the first positive growth (2.1 per cent) on an annual level since Q3 2008.

The biggest rise in rents was seen in London’s West End (13.3 per cent), Paris (7.1 per cent), City of London (5.3 per cent) and Dusseldorf (2.3 per cent). 

Quarterly rental falls were however recorded in Dublin (-5.3 per cent), Frankfurt (-2.9 per cent), Madrid (-2.6 per cent), Barcelona (-2.4 per cent) and Hamburg (-2.2 per cent). 

Incentives offered by landlords also stabilised with some markets seeing incentives reducing such as London City, London West End, Bucharest and Hamburg.

Chris Staveley, head of Pan-European office and industrial capital markets at Jones Lang LaSalle, says: “Signs of economic recovery are beginning to feed through into office demand, but occupiers still remain cautious and we expect annual volumes to be slightly below the five year average of 11 million square metres.”

Approximately 1.4 million square metres of new stock was added in Q2, a 25 per cent increase on the first quarter. Despite this new stock, tightening supply of quality space is driving rental stability and even growth, but there are significant differences in current total supply levels – and sentiment – across the region which has led to differences in outlook.

The average European vacancy rate remained stable in Q2 at 10.2 per cent, despite these additions, the same level as in Q1 10 and Q4 09. The vacancy rate increased slightly to 9.8 per cent in Western Europe but fell substantially in CEE from 16.4 per cent to 14.6 per cent. This decline was particularly driven by decreases in Moscow and Budapest, whilst increases where recorded in both Prague and Warsaw.