London City, Paris CBD and Paris La Defense currently offer some of the highest available discounts, around 20% of the total months over lease term, says the report from property firm Savills.
‘Over the past five years landlords in some of Europe's prime office markets have lengthened rent free periods to support headline rents. This means that markets such as London and Paris, where landlords should be feeling more confident, have surprisingly large incentives on offer,’ said Julia Maurer, European research analyst at Savills.
The report shows that on average rent free concessions for prime CBD space have increased by 21% across Europe in 2013 compared with 2008 and currently account for an average 12% of the total rental period in the markets examined.
The highest percentage of rent free months offered in the markets surveyed is in Milan at 25%, followed by Paris CBD and La Defense both at 21% each, and London City and Dublin both at 20%.
But weaker markets are not offering much of an incentive for take up. For example in Athens, where prime headline rents have fallen significantly by 30% over the past five years, there is only offers of 2% of months rent free.
Take up levels rose in approximately half of the locations surveyed and the firm suggests that going forward this improved take up could lead to a reduction of incentives offered by landlords in these markets, and therefore have a positive impact on real rental growth.
The outlook is particularly positive for London, Vienna, Brussels and Warsaw which all recorded year on year take up increases of approximately 20%.
‘We are seeing a moderately positive trend across European office markets as the average amount of rent free periods offered is in some cases decreasing. German cities in particular reflect this trend, with rent free periods either stable or going down and only a small difference between headline and effective rents,’ explained Eri Mitsostergiou, Savills European research director.
Overall the report shows that incentives seem to be determined by the combination of different market indicators, such as availability and demand, and the individual local characteristics. It concludes that incentives are therefore a good indicator of the general market sentiment.
