However, there is little risk of oversupply, says Savills, as more than half (51%) of the space under construction (H2 2018 and 2019 anticipated completions) is already committed to specific occupiers, the equivalent of 58% of this year’s completions (H2) and 40% of 2019’s completions. As a result, available supply both in existing and new buildings will only account for about 7% of office stock across European cities (including next year’s speculative developments). The markets where tenants should be able to find most options to actively satisfy their needs are Warsaw (13% availability), Dublin (12%) and Madrid (11%).
The average office vacancy rate across Europe’s top cities is at a historic low of 5.9%, reports Savills, but according to its projections the rate is set to fall even further to just 5.6% of stock by the end of the year across the 17 cities analysed.
The most undersupplied markets are Berlin (1.4% vacancy projection by year end), Paris CBD (2.1%) and Munich (2.5%) says Savills. The lack of space in key markets has constrained take-up as businesses have been unable to find buildings that match their requirements. Take-up has risen an average of 5% pa since 2013, exceeding 9.9 million sq m in 2017, as a result of growing employment and business expansion, but the pace of growth has now slowed due to lack of supply and Savills says take up could fall below 9 million sq m this year.
Matthew Fitzgerald, Director, International Tenant Representation, Savills, comments: “Current development activity will result in more choice for occupiers in certain cities, but it’s a long way from creating oversupply in the market. 2019 is set to continue to be a very competitive market for occupiers, resulting in rising rents for prime stock and delays as companies postpone making property decisions as they hold out for new space. Pre-lets will continue to be a good option to mitigate risk and flexible office space will remain a popular solution to satisfy immediate needs.”
Eri Mitsostergiou, Director of European Research, Savills, adds: “Office based employment is forecast to continue to grow across Europe, with Oxford Economics predicting an additional 180,000 office based jobs next year across the 18 markets of our survey area. This corresponds to more than 2 million sq m of traditional office space and therefore, theoretically, will comfortably absorb all the non-committed new supply that is expected to come on to the market next year, which we estimate at about 2m sq m. Even taking into account that some of the current pre-lets have already accounted for some of this anticipated growth, the fact that total speculative supply does not exceed the estimated needs for business expansion is a sign of balanced demand and supply conditions.”