Office Snapshot

H2 2014
EMEA

The economy: new year,

same problems?
The beginning of the year is an ideal time to look back, take
stock of the situation and make forecasts for the year ahead.
After a quite promising start, 2014 has left us with a number of
unresolved issues, some old and some new
Renewed concerns over the solidity of the Eurozone and
whether the Euro is effectively irreversible as rumours of
a Grexit resonate again.
The threat of deflation in Europe and the scale and timing
of the ECBs plans to address that.

Prime CBD Net Office Rent Growth;

H2 2014 vs. H1 2014
20%
15%
10%
5%
-0%
-5%
-10%
-15%
-20%
-25%
-30%
Dublin
London City
Milan
Riga
Rome
Oslo
Antwerp
Belfast
Amsterdam
Barcelona
London West End
Madrid
Bristol
Birmingham
Manchester
Geneva
Munich
Wroclaw
Berlin
Eindhoven
Kyiv
Dsseldorf
Moscow
Minsk
Saint Petersburg

Timing of the increase in interest rates in the UK and

US though increasingly likely to be pushed back.
The effects of a burst of the property bubble in China on the
global economy.
but also a few certainties:

Mixed rental growth patterns

Even the sounder European economies cannot withstand

a spell of prolonged weakness in key economic partners.

In H2 2014, conditions across European office markets continued

to reflect the uneven rhythm of economic growth in Europe.
That has led us to divide them into four main categories:

The power of politics: how political outcomes, or even simple

speculation on those, can drive sudden change in sentiment:
e.g. the upcoming elections in Greece.
Outside Europe, the US has reaffirmed its role of economic
powerhouse, with annual GPD growth in at 5% in Q3 2014.
Bubble or not, Chinas economy is structurally slowing down.
How the former play out will shape the European economic
landscape in 2015. In our view, a slow growth scenario remains
the more likely at present.

Under pressure markets: these comprise parts of southern

Europe and the Eastern fringe of the continent (Russia, Ukraine).
Uncertainty and economic weakness have kept rents under
pressure here and resulted in increasing vacancies, and this will
likely carry over to 2015.
Stable/flat markets: these include a mixed bag of markets
such as Germany Big 6, Paris, parts of Scandinavia and CEE. In
Germany, prime rents increased throughout 2014 and are now
at their cyclical peak. Demand has also softened, reflecting the
more cautious economic outlook. Despite the more worrying
state of the French economy, prime CBD office rents in Paris
were unchanged in H2, but downside pressure remains in place
across the rest of the market. In most cases, including Paris and
Germany, prime rents are forecast to remain stable through at
least the first part of 2015.

Office Snapshot | H2 2014 | EMEA | Colliers International

CBD-led recovering markets: these include key office

locations in Spain, Ireland and Netherlands, which are
benefitting from the economic upturn and improved sentiment.
In H2, prime rents rose the most in Dublin (+14.3%) but also
in Madrid (+2.0%), Barcelona (+2.9%), and Amsterdam (+2.9%).
In the latter, prime rental values are now near their pre-crisis
levels. Despite Italys continuing economic woes, Milan and
Rome have also seen a first glimpse of rental growth in H2, for
the first time since 2011 in the former and 2012 in the latter.
In Madrid and Dublin rents are nonetheless rising from
a very low base, and in virtually all the markets in this category
increases are localised and confined essentially to CBDs and the
best office districts. In 2015, we expect continued improvement
for these markets, subject to the economic recovery remaining
on track, with greater downside risks for Italy.
Ahead of the curve markets: this grouping is dominated
by the UK, where there are signs of rental growth becoming
increasingly broad-based and filtering through to the regions.
In H2 2014, prime rents increased in London West End (+2.1%),
London City (+8.3%), Manchester (+1.6%), Birmingham (+1.8%)
and Bristol (+1.8%). Forecasts point to CBD rents increasing
further in a majority of centres in the next 12 months as
business confidence continues to improve.

Capital markets ahead

of fundamentals
In H2, we saw the weight of capital targeting European real
estate pushing prime office yields lower across a diverse
number of locations. With the leasing market generally still
lacking vigour, this means pricing continued to move faster than
fundamentals, especially in recovering markets

(see previous section) where the rental recovery has been so far
primarily driven by a shortage of good quality space rather than
a convincing upturn in demand.
Indeed, virtually all those markets have seen prime office yields
moving in by varying degrees in H2 2014: Amsterdam (-20 bps),
Madrid (-75 bps), Barcelona (-75 bps) and Dublin (-50 bps).
Yield compression continued to be observed in the so-called
safe-haven markets of London (West End and City;
-25 bps), Paris (-10 bps), Munich (-25 bps) and Frankfurt
(-10 bps), but also across regional UK cities (Manchester,
-50 bps; Birmingham, -50 bps; Edinburgh, -25bps; Glasgow,
-25 bps), testament to the positive sentiment around the UK
economy and property market, and expectations of rental
growth.
Other cities that recorded downward movements in yields over
the same period include Brussels, Dusseldorf, Oslo, Prague,
Budapest, Sofia, Tallinn and Vilnius. By contrast, reflective of
the weaker economic prospects, prime office yields rose in
Moscow and Kiev.
Going forward, expectations of a lasting ultra-low interest rate
regime in Europe suggests that the yield spread even for prime
office properties will remain appealing despite the degree of
yield compression that has already occurred. This, combined
with the sheer volume of domestic and cross-border capital
seeking real estate investments in core and now, increasingly,
in more peripheral and cyclically recovering markets, point to
further yield compression in 2015, particularly in the latter.

Office Snapshot | H2 2014 | EMEA | Colliers International

CITY

COUNTRY

MEASUREMENT

PRIME CBD 6 MONTHS

RENT
CHANGE %

ANNUAL
CHANGE %

OUTLOOK

AVERAGE
CBD RENTS

PRIME
YIELD

6 MONTHS
CHANGE
BPS

ANNUAL
OUTLOOK
CHANGE BPS

Tirana

Albania

EUR/sqm/month

24.5

0.0

0.0

tu

17.0

9.50%

Vienna

Austria

EUR/sqm/month

28.0

0.0

7.7

19.5

3.80%

30

tu

Minsk

Belarus

EUR/sqm/month

34.0

-8.1

-8.1

tu

28.0

13.00%

-150

-150

n/a

Antwerp

Belgium

EUR/sqm/month

12.5

4.2

7.8

tu

10.5

7.00%

-25

Brussels

Belgium

EUR/sqm/month

22.1

0.0

5.2

tu

15.0

5.75%

-25

-25

Sofia

Bulgaria

EUR/sqm/month

13.0

0.0

8.3

10.5

9.00%

-50

-50

tu

Zagreb

Croatia

EUR/sqm/month

15.0

0.0

0.0

tu

8.50%

tu

Prague

Czech Republic

EUR/sqm/month

19.5

0.0

-4.9

tu

12.0
n/a

6.00%

-25

-50

tu

Copenhagen

Denmark

DKK/sqm/year

1,800.0

0.0

0.0

tu

1,300.0

5.50%

Tallinn

Estonia

EUR/sqm/month

16.0

0.0

0.0

tu

14.4

7.10%

-40

-40

Paris

France

EUR/sqm/month

62.5

0.0

-3.8

tu

n/a

3.90%

-10

-10

Tbilisi

Georgia

USD/sqm/month

21.0

0.0

0.0

tu

13.6

12.00%

tu

Berlin

Germany

EUR/sqm/month

27.0

-1.8

-1.8

tu

19.0

4.50%

tu

Dsseldorf

Germany

EUR/sqm/month

26.0

-5.5

-5.5

tu

19.5

4.90%

-20

-20

tu

Frankfurt

Germany

EUR/sqm/month

38.0

0.0

0.0

tu

32.5

4.75%

-10

-10

tu

Hamburg

Germany

EUR/sqm/month

24.5

0.0

2.1

tu

22.5

4.50%

-20

tu

Munich

Germany

EUR/sqm/month

41.0

-1.2

0.0

tu

30.0

4.00%

-25

-25

tu

Stuttgart

Germany

EUR/sqm/month

25.0

0.0

n/a

tu

18.0

5.10%

-10

tu

Athens

Greece

EUR/sqm/month

16.0

0.0

-11.1

tu

11.0

8.25%

-25

tu

Budapest

Hungary

EUR/sqm/month

18.0

0.0

0.0

tu

tu

Dublin

Ireland

EUR/sqm/year

480.0

14.3

Milan

Italy

EUR/sqm/month

38.6

Rome

Italy

EUR/sqm/month

34.8

Riga

Latvia

EUR/sqm/month

Vilnius

Lithuania

EUR/sqm/month

Amsterdam

Netherlands

EUR/sqm/year

tu

q
tu
q

12.5

7.25%

-25

-50

21.2

430.0

5.00%

-50

-125

7.2

-3.5

32.3

5.90%

tu

5.5

4.4

26.6

6.50%

30

tu

17.0

6.3

6.3

tu

14.0

8.00%

tu

17.4

0.0

0.0

14.8

7.50%

-25

-25

350.0

2.9

4.5

245.0

-20

-60

tu

Eindhoven

Netherlands

EUR/sqm/year

185.0

-2.6

-2.6

135.0

5.90%
n/a

n/a

n/a

n/a

Rotterdam

Netherlands

EUR/sqm/year

235.0

0.0

0.0

tu

148.0

6.80%

-20

tu

Oslo

Norway

NOK/sqm/year

4,500.0

4.7

12.5

3,800.0

4.80%

-20

-40

Krakow

Poland

EUR/sqm/month

15.5

0.0

0.0

tu

13.7

7.50%

tu

Warsaw

Poland

EUR/sqm/month

24.0

0.0

0.0

16.0

6.00%

tu

Wroclaw

Poland

EUR/sqm/month

14.8

-1.3

-1.3

tu

13.5

7.00%

tu

Lisbon

Portugal

EUR/sqm/month

18.8

0.0

1.4

14.9

8.00%

tu

Bucharest

Romania

EUR/sqm/month

17.0

0.0

0.0

tu

Moscow

Russia

USD/sqm/month

70.0

-7.3

-6.7

Saint Petersburg

Russia

USD/sqm/month

40.6

-25.2

-25.1

Riyadh

Saudi Arabia

SAR/sqm/year

2,300.0

0.0

Belgrade

Serbia

EUR/sqm/month

17.0

0.0

Bratislava

Slovakia

EUR/sqm/month

14.5

Barcelona

Spain

EUR/sqm/month

Madrid

Spain

EUR/sqm/month

Stockholm

Sweden

Geneva

14.5

7.75%

-50

n/a

9.00%

50

50

tu

31.2

9.00%

tu

15.0

tu

1,400.0

10.00%

50

tu

3.0

tu

15.5

9.00%

-50

tu

0.0

0.0

tu

11.0

7.50%

tu

18.0

2.9

2.9

14.5

5.25%

-75

-100

25.0

2.0

3.1

19.0

5.00%

-75

-100

SEK/sqm/year

5,650.0

0.0

0.9

tu

4,700.0

4.50%

tu

Switzerland

CHF/sqm/year

825.0

-1.2

-2.9

tu

580.0

4.50%

25

tu

Istanbul

Turkey

USD/sqm/month

45.0

0.0

0.0

33.4

7.00%

tu

Kyiv

Ukraine

USD/sqm/month

31.0

-3.1

-11.4

tu

17.0

13.00%

100

200

tu

Abu Dhabi

United Arab Emirates

USD/sqm/month

39.0

0.0

0.0

tu

30.9

10.00%

tu

Dubai

United Arab Emirates

USD/sqm/month

60.0

15.7

27.8

tu

40.9

10.00%

tu

Belfast

United Kingdom

GBP/sqft/year

14.5

3.6

3.6

13.0

6.25%

Birmingham

United Kingdom

GBP/sqft/year

29.0

1.8

1.8

23.0

5.25%

-50

-50

Bristol

United Kingdom

GBP/sqft/year

28.0

1.8

1.8

24.5

5.75%

-50

Edinburgh

United Kingdom

GBP/sqft/year

27.5

0.0

0.0

tu

21.0

5.75%

-25

-25

Glasgow

United Kingdom

GBP/sqft/year

29.0

0.0

0.0

tu

27.0

5.75%

-25

-25

Leeds

United Kingdom

GBP/sqft/year

27.0

0.0

3.8

21.0

5.50%

-75

London City

United Kingdom

GBP/sqft/year

65.0

8.3

8.3

53.5

4.25%

-25

-50

London West End United Kingdom

GBP/sqft/year

122.5

2.1

2.1

95.0

3.50%

-25

-25

tu

Manchester

GBP/sqft/year

32.5

1.6

8.3

25.0

5.00%

-50

-100

tu

United Kingdom

Prime CBD Net Rent

The top open-market tier of rent that could be expected for a unit of standard size
(500-1,000 sqm), and of the highest quality and specification (Grade A), in the best
location in the market at the survey date. The figure excludes service charges and
taxes, and does not reflect tenant incentives.

q
p

q
q

Prime Yield
The yield an investor is prepared to pay to buy a Grade A building, fully-let to high quality
tenants at an open market rental value in a prime location. The size of the building and lease
terms should be commensurate with the market. The yield quoted will reflect local market
practice, which can differ by country.

Office Snapshot | H2 2014 | EMEA | Colliers International