Average European office vacancy rates have stabilised at 7.2%, having not moved since the third quarter of 2021, according to a new report.
Research by CRE consultancy Savills attributes this state of affairs partly to a shortage of new deliveries of space and to tenants withdrawing stock that was previously openly marketed. The 10-year average vacancy rate is 7.8%.
Across Europe, as a result of stabilising vacancy central business district (CBD) rates, Savills has seen lease incentives move back in, from 11.1% of average total contracted rent in Q4 2020 to 10.5% of contracted rent in Q1 2022. In Warsaw, rent-free periods have contracted by 10 basis points because of strong office demand. But space is tighter in Berlin and Paris CBDs, with vacancy rates of 2.7% and 2.9% respectively.
Georgia Ferris, Savills’ European research analyst, said: “We expect rents for prime offices to increase, with lease indexation contributing to upward pressure. Rising construction costs are supporting rental levels for standing stock as occupiers demand higher-quality space.”
Matthew Fitzgerald, director, cross-border tenant advisory EMEA at Savills, says: “As we come to the end of the first quarter without restrictions in many European cities, demand is strong for high-quality space in prime locations with the best amenities.”
Increasingly, occupiers want flexible space options alongside conventional options, says Savills. This no longer applies only to fast-moving technology companies but also extends to financial and professional services organisations that are increasing their flex-office footprint in a bid to attract talent back to the workplace and offer flexibility in their existing office portfolio.
Fitzgerald added: “Predictably, sustainability is fast becoming the key theme surrounding office demand in 2022. Occupiers are competing to find the best-in-class space and this includes having high environmental credentials as a result of both corporate statements and employee demand.”
In a separate statement, Savills reported last week that the amount of City of London office space taken by occupiers in May was 714,683 sq ft – the highest monthly take-up by volume since December of last year.