A “sluggish” European tertiary rental market in the first quarter
According to the latest study by Primonial REIM, “Real estate convictions 2023 – Q1”*, the European tertiary rental market was sluggish in the first quarter, while new job creations were maintained (+1.1% over one year). Take-up of offices totaled a volume of 2.6 million m², down from the 3 million m² transacted during the same period in 2022.
With a total of 317,000 m² taken up, the Paris market had a sluggish start to the year. “The most attractive neighborhoods in the eyes of users, in quality spaces and with good transport accessibility were the most popular. London, Berlin, Munich follow with leases of between 100,000 and 200,000 m² signed”, reports Primonial REIM.
The general trend is for the stability of the available supply between the end of 2022 and the first quarter of 2023, but the trends are very contrasting. Central districts such as Paris, Berlin and Munich have managed to keep vacancy rates below 5%. Conversely, Barcelona, Madrid or London City still show a vacancy rate of more than 10%.
“Users’ attraction to central, modern, flexible office buildings that meet ESG criteria and are accessible by transport have continued to drive rents upwards”, continues Primonial REIM. “The Parisian business district has the highest rent in the euro zone with just over €1,000/m² for the most sought-after assets. Berlin, Frankfurt, Munich or Milan offer rents between 500-700 €/m² and markets like Brussels, Madrid or Barcelona have rents around 250-450 €/m². »
A low level of investment
In addition, the rise in sovereign rates and the uncertain context will have led investors to play the card of caution on the office asset class, which recorded a low level of investment in the first quarter of 2023 compared to its ten-year average. , according to the Primonial REIM study. “The wait-and-see attitude of investors, the recomposition between the markets as well as changes in legislation on the energy performance of buildings have impacted capital flows. »
The volume of investment in office property in Europe totaled €11 billion in the first quarter of 2023 (-63% year-on-year). France takes the lead in the ranking and registers nearly 4 billion euros (-11%), followed by the United Kingdom with 3 billion (-67%) and Germany around 1 billion euros (-80% ). Spain, Italy, the Netherlands and even Belgium recorded commitment amounts of less than one billion euros.
Between December 2022 and the end of the first quarter of 2023, the majority of office markets in Europe remained stable while the other part experienced decompressions, a direct consequence of the sharp rise in bond rates. Decompressions of between 10 and 50 bps were seen in office markets at the end of the first quarter of 2023.
However, two developments should be noted compared to the previous quarter and militate for an exit from the zone of turbulence for Primonial REIM: “firstly an amplitude of decompression which is settling and secondly more and more markets are stable”. The “prime” markets have a yield of less than 4.5% in cities such as Paris, London, Munich, Vienna, Madrid, Milan or even Helsinki. The markets with a yield equal to or greater than 4.5% are Lisbon, Rome, Barcelona or Rotterdam, for example.
*Entire Primonial REIM study attached.