Occupiers face tough leasing task despite European development reaching five-year high, says Savills
Occupiers looking for quality workspace in Europe will face tough competition for the best space in the leasing market, despite the most active period of new office construction in half a decade, Savills predicts.
Newly developed offices set to complete in the region this year will provide 26 per cent more space compared with 2020, says the European Office Development report, released today.
However, average vacancy rates across many cities in Europe – including Berlin, Stockholm, Amsterdam and Paris – will be below 6 per cent making them some of the most competitive leasing markets.
A new building supply of 5.2m sq m, which is distributed across 24 markets in the region, is due to be completed this year, with a similar amount of supply (5.1m sq m) due in 2022. This is the highest level of new supply in five years.
But Savills predicts that with half of this space already committed – 54 per cent of new offices in 2021 already pre-let and 39 per cent in 2022 – any new prime space will be absorbed, based upon known levels of demand.
Prime offices will be most scarce in Berlin, which is set to have a 2.3 per cent vacancy this year, with other German cities seeing very little spare capacity. In 2021, Cologne’s vacancy rate will be 2.9 per cent, while Hamburg’s will be 4 per cent.
Pre-let figures are below those in previous years (which were between 55 per cent and 60 per cent), however Eri Mitsostergiou, director, European research, Savills, says: “Quality workspace is a priority for occupiers, and as this is expected to continue, supply remains tight.”
The report echoes the sentiment of Savills latest Impacts publication, which was released last month. Impacts identifies that the transition to a hybrid workforce is the biggest challenge businesses will face in the next five years. “Given low office availability in many locations, it’s better to start looking sooner rather than later to find space that will work for you in a hybrid model,” it says.
Savills is also seeing space constraints in Stockholm, which is registering vacancy of 5 per cent, and in Munich, where unleased office space will be 4 per cent of the market. Lisbon’s will be 7.2 per cent, London’s West End will be 7.3 per cent, while Barcelona will experience 8.5 per cent vacancy.
The European Office Development report predicts that an increase in secondary supply is expected to cause an overall increase in the average vacancy rate across the survey area, however much of this may not be attractive in meeting current occupier requirements, particularly in relation to ESG and digital suitability.
Savills forecasts the number of vacant offices will lead to an 80 basis point shift upwards, making empty space on average 7.5 per cent of the total area surveyed.
European markets predicted to have the highest vacancy rates are expected to be Warsaw (11 per cent), Bucharest (11 per cent) and Paris La Defense (13.5 per cent), says Savills.
Businesses are likely to redesign spaces around wellness and safety requirements as workers gradually return to their office desks.