2012GLOBAL REALESTATE MARKETSAnnual review and outlookFigure 4European office take-up and vacancy rate indicesH1 2005=100160140120100Despite <strong>the</strong> negative news surrounding <strong>the</strong>Italian economy, <strong>the</strong>re were robust levels ofleasing activity in Milan in 2011. None<strong>the</strong>less,availability has increased, particularly inperipheral areas, as occupier interest hasbeen focused on prime central space at <strong>the</strong>expense of lower quality offices in secondarylocations.806040200H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H22005 2006 2007 2008 2009 2010 2011Recent office market activity in Vienna haslargely been driven by tenants relocating tomore cost-effective premises. The city’svacancy rate has risen to 6.3%, but this remainslow compared with most o<strong>the</strong>r Europeancapitals. Prime rents were stable at €24.50per sq m per month throughout <strong>the</strong> year.Indices are based on 15 key European markets, weighted by size and market maturitySource: <strong>Knight</strong> Frank Researchremains high at over 20%, but <strong>the</strong>re are veryfew large spaces available in <strong>the</strong> city centreand no significant office developments arecurrently under construction.In Belgium, occupier and investor sentimentweakened in 2011, influenced by concernsover both <strong>the</strong> wider Eurozone debt crisis and<strong>the</strong> country’s own troubled public financesand political instability. Office take-up in <strong>the</strong>Brussels market was 324,000 sq m, whichwas <strong>the</strong> lowest <strong>for</strong> nearly 20 years. There werea number of large leasing transactionsinvolving public sector occupiers, butcorporate tenants remained cautious, puttingexpansion and relocation decisions on hold.FrankfurtOffice take-up indexOffice vacancy rate indexThe uncertain climate also led to a 25 basispoints softening of prime office yields, to6.25% in <strong>the</strong> final quarter of 2011.The Amsterdam market remained relativelyrobust in 2011, with office take-up rising by7%, to 258,000 sq m. The strength ofdemand, toge<strong>the</strong>r with decisions to change<strong>the</strong> use of some unmarketable officebuildings, contributed to a slight decrease inAmsterdam’s structurally high vacancy rate,taking it from 17.5% to 17.0% over <strong>the</strong> courseof <strong>the</strong> year. In contrast, o<strong>the</strong>r Dutch marketsincluding Rotterdam and The Hague sawreduced take-up and continued rises inavailability in 2011.Occupier and investor confidence in <strong>the</strong>Nordic region was relatively high in 2011. TheNordic countries have been comparativelyunaffected by <strong>the</strong> debt crisis, having lowlevels of public debt and, with <strong>the</strong> exceptionof Finland, being outside <strong>the</strong> Eurozone.Stockholm and Oslo recorded some of <strong>the</strong>strongest prime office rental growth anywherein Europe in 2011. Commercial propertyinvestment in Sweden amounted to €7.1billion, up by 20% on 2010, making it <strong>the</strong>fourth most active country in Europe, behind<strong>the</strong> “big three” markets of <strong>the</strong> UK, Germanyand France.The CEE region also per<strong>for</strong>med strongly in2011, being home to some of Europe’s fastestgrowing economies and largely immune from<strong>the</strong> worst effects of <strong>the</strong> Eurozone debt crisis.Poland, in particular, continued to seebuoyant economic growth, with GDP rising by4.3%. This translated into strong demand in<strong>the</strong> Warsaw office market, which saw take-upreach a record 573,000 sq m. Prime officerents moved upwards by 8% during 2011, toend <strong>the</strong> year at €25.60 per sq m per month.The Prague office market also witnessedrecord take-up, of 276,000 sq m, in 2011.While tenant renegotiations have continuedto be an important driver of <strong>the</strong> market,corporate expansion accounted <strong>for</strong> anincreased proportion of activity. The city’svacancy rate fell to 12.0% at <strong>the</strong> end of 2011,from 13.2% a year earlier, but this was notenough to put serious upward pressure onprime rents, which remained unchanged at€20-21 per sq m per month.8
Bucharest was ano<strong>the</strong>r CEE office market tohave its strongest year on record, with annualtake-up of 240,000 sq m in 2011. Only115,000 sq m of new office space was broughtto <strong>the</strong> market, 70% down on <strong>the</strong> previousyear, and <strong>the</strong>re are very few large-scaleprojects currently in <strong>the</strong> developmentpipeline. Vacancy rates have fallen, currentlystanding at 10% in <strong>the</strong> CBD, and below 1% in<strong>the</strong> Calea Floreasca/Barbu Vacarescu area,which has become an increasing focus ofoccupier demand in recent years.The CEE area saw some of <strong>the</strong> sharpest rises ininvestment activity seen anywhere in <strong>the</strong> worldin 2011, as commercial property sales came toapproximately €8.2 billion, well over double<strong>the</strong> 2010 figure. Over 80% of investmentvolumes came from cross-border sources, withinstitutional investors from Germany, Austriaand <strong>the</strong> US among <strong>the</strong> most active buyers.Fur<strong>the</strong>r east, Russian commercial propertymarkets have recovered well over <strong>the</strong> last twoyears, after occupier demand collapsed in2009. Take-up of Class A and B office space inMoscow was 989,000 sq m in 2011, almostexactly <strong>the</strong> same level as 2010, but still someway short of <strong>the</strong> totals recorded in <strong>the</strong> boomyears of 2006-08. Since peaking at 19.5% in2009, <strong>the</strong> Class A vacancy rate has steadilyfallen, ending 2011 at 12.5%. Average Class AMoscowrents rose by 9% in 2011, and fur<strong>the</strong>rincreases are expected in 2012. <strong>Rent</strong>al growthis anticipated to be strongest in <strong>the</strong> citycentre, as a result of falling supply levels andnew government restrictions on constructionactivity.Figure 5European prime office yields%10St Petersburg also recorded rising office rentsand falling vacancy rates. The most significantrecent development in <strong>the</strong> market has been <strong>the</strong>growth of <strong>the</strong> Pulkovo business district, southof <strong>the</strong> city and near <strong>the</strong> airport. This locationhas become a significant focus of constructionactivity, and <strong>the</strong> availability of large, modernoffices has attracted international and Russianoccupiers to <strong>the</strong> area.8642The weakening of economic conditionsaround <strong>the</strong> turn of <strong>the</strong> year has added to <strong>the</strong>already uncertain outlook <strong>for</strong> Europeanoccupier markets in 2012, and it is possiblethat activity may yet be impacted by fur<strong>the</strong>rdevelopments in <strong>the</strong> Eurozone. Generally,0AmsterdamBrusselsDublinFrankfurtSource: <strong>Knight</strong> Frank ResearchLisbonLondon (City)London(West End)MadridMilanQ4 2010 Q4 2011MoscowMunichParisPragueStockholmWarsaw9
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