Office completions in key European cities set to grow this year and in 2019

Office completions across 17 European top cities are set to reach approximately 3.2 million square meters by the end of 2018, before increasing by 28% to 4.1 million square meters in 2019.

However, there is little risk of oversupply as more than half, some 51% of the space under construction is already committed to specific occupiers, according to new research from international real estate advisor Savills.

This is the equivalent of 58% of this year’s completions and 40% of 2019’s completions and as a result, available supply both in existing and new buildings will only account for about 7% of office stock across European cities.

The analysis also says that the markets where tenants should be able to find most options to actively satisfy their needs are Warsaw at 13% availability, Dublin at 12% and Madrid at 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 with a 1.4% vacancy projection by the end of the year, Paris CBD at 2.1% and Munich at 2.5%, the research also suggests.

It explains that 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% per annum since 2013, exceeding 9.9 million square meters 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 nine million square meters this year.

‘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,’ said Matthew Fitzgerald, director of International Tenant Representation at Savills.

‘Next year 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,’ he added.

According to Eri Mitsostergiou, director of European Research at Savills, 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 the survey area.

‘This corresponds to more than two million square meters 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 two million square meter,’ he pointed out.

‘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,’ he added.