IPF: Europe offices sentiment rises

By Paul Norman - Monday, November 13, 2017 11:00

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Overall sentiment has improved for European offices, with two-thirds of average market forecasts rising, but uncertainty over Brexit continues to dampen expectations for central London, in the IPF's latest European Consensus Forecasts of prime office rents.

For IPF's second survey of 2017, 19 contributors provided forecasts for some or a majority of the 30 locations covered by this research. All forecasts were generated within six months of the survey date.

For 2017 average rental growth expectations for the year continue to range widely: from 8.6% for Stockholm (5.2% six months ago) to -5.9% for the West End of London (from -4.5% in May). This compared to a mean forecast of 2.8% for the year across the 29 markets in this survey.

The number of locations registering negative forecasts for the year has risen to five (from four in May) although growth prospects in 18 markets have improved from expectations six months ago, with one virtually unchanged.

Of the 10 markets where growth rates are lower than in the previous survey, Dublin records the greatest weakening in sentiment, down 1.9% to 2.8%. Falling growth rates for the remaining nine centres, range between a drop of 1.4% for the West End of London (now -5.9%) to 0.2% for the Paris central business district (2.6% for the year).

Brussels leads the majority of centres recording higher growth rates, with a 4.1% improvement in its average outlook (to 6.2%), followed by a rise of 3.4% for Stockholm (now 8.6%).

Two other markets attract improved growth rates of more than 2% (Luxembourg, at 4.7% from 1.9%, and Milan, up 2.5% to 5.9%). Forecasts in four locations (Lyon, Berlin, Oslo and Amsterdam) have risen by between 1% and 1.8% (to 3.5%, 7.4%, 3.5% and 4.8% respectively).

Growth rates of 4% or better are now forecast in eight markets; Barcelona (7.2%) and Madrid (6.8%) being in addition to those highlighted above, and rents in a further five markets may grow by 3.0% or better (including Lisbon, Munich and Prague).

2018 forecasts

Average annual growth forecasts in 2018 range from -3.9% for London’s City offices (previously -3.7%) to 5.2 % for Madrid (previously 6.2%). The mean for all locations has remained at 1.6% with 15 markets forecast to achieve better growth than this average rate.

Compared to six months ago, confidence has grown in 11 locations (by 0.5% or more in six of these) but weakened in 18 centres, although by only 0.5% or greater in six markets.

With an average growth rate of 1.7% across all markets, eight locations are forecast to grow by 3% or more next year, led by Madrid and Barcelona at 5.2% and 4% respectively, and a further three projected to show rental increases of between 2% and 3% over this period.

Current forecasts for 26 of the 29 locations covered in the current survey are positive, with only the two central London markets (-3.9% in the City and -3.6% in the West End) and Warsaw (-0.1%) registering negative growth.

2019

Positive growth is forecast for 26 markets in 2019, the exceptions being Dublin (at -1.2%), the City of London (-0.8%) and Warsaw (-0.2%). The average for all markets has dropped back from 1.5% in May to 1.2% currently, although 13 locations are expected to exceed this.

The highest growth prospects are recorded for Berlin (3.1%, a rise of 1.3% from six months ago) followed by Madrid (2.8%) and Moscow at 2.4%.

Three markets are forecast to grow by 2.0% or more in the final year of the survey, compared to 10 in May, with the majority (17) lying between 1.0% and 1.9%.

Three-year Average Growth Rates

The forecast annual average growth rate for all 29 markets has risen slightly, to 1.9% per annum, from 1.8% six months ago, with 13 locations exceeding this.

Annualised averages for 14 centres weakened over the period since the last survey, falling by more than 0.5% in five instances.

Rental growth expectations in central London offices have continued to fall, to -2.9% and -2.6% per annum, from -1.9% and -2.5% per annum six months ago, for the City and West End respectively. The prospects for Warsaw have improved marginally, rising to -0.4% from -0.6% per annum previously.

Annualised three-year growth rates of 3.0% or more are recorded for six markets, led by Berlin (5.0% per annum), Madrid (4.9%), Stockholm (4.4%) and Barcelona (4.3%).

Five-year Outlook

Over the longer term, to 2021, the rolling average growth rate has risen slightly, to 1.7% per annum from 1.6% three months ago. The range of forecast averages extend from -0.6% for London’s City market (from -0.1% previously), to 3.8% for Berlin (previously 3.1%).

Up to 14 locations may experience above-average growth, including all four German centres (although Hamburg is the weakest of the group, at a rate of 1.8% per annum). Stockholm emerges as the office market expected to be the best non-Eurozone market for rental growth, at 2.7% per annum over five years (from 2.5%).

The IPF concludes: "Overall sentiment appears to have improved for the current year, as two-thirds of average market forecasts rose as compared to the May returns. Uncertainty over the outcome of Brexit negotiations continues to exert a negative influence on the central London markets though.

"Growth prospects vary considerably between locations, whether in or outside the Eurozone – averages analysed for this survey range by 11.9% from the highest to lowest in the current year. Individual contributors also continue to demonstrate wide differences of opinion, as evidenced by a spread of 2017 growth forecasts for Stockholm in excess of 15.2%.

"Across the survey period, 2017 to 2019, expectations are for growth to weaken year-on-year; current forecasts indicate a slow down across the majority of markets in both 2018 and 2019 (23 and 21 respectively lower than the preceding year)."

pnorman@costar.co.uk

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