Core investment boosts European office market

Core investment boosts European office market

It is consultant Savills which says so and which further revealed in its latest report "Savills Spring 2020 European Office Outlook" that this core asset dynamic was more intense in the United Kingdom, France and Germany. These three countries alone represented 73% of those transactions, 10% more than last year.

This market dynamic, «since it stems from a change towards core assets, we predict that cross-border activity will decrease when compared to previous years, especially within the Asia-Pacific area, where we saw unprecedented levels of investment in the last few years. We predict that this will affect the Southern European and Central and Eastern European (CEE) markets, which are more dependent on the cross-border capital than Western Europe», explained Mike Barnes, Associate in the European research division at Savills.

He further added that «escape to the main markets is a subject on which we expect to make progress throughout this year, as the markets adjust to uncertainty. That said, the weight commercial transactions had during the last few years, will increase investors sensitivity towards prices as new purchasing opportunities appear», assumed Mike Barnes.

Portugal remains resilient

Despite the market’s uncertainty, indicators in the office segment do not point towards change. «In Portugal, there is no evidence that point towards an adjustment in office rentals, quite the opposite. Operations carried out recently, some carried over from last year, maintained the same prices. Given the lack of quality offices in our country, we believe prices will remain stable, despite a slowdown in terms of rent increase levels when compared to previous years», explained Rodrigo Canas Associate Director at Savills Portugal’s Office Department.

Occupancy shows signs of slowing down

In terms of occupancy levels, the European office market shows the first signs of slowing down. 2.1 million sqm were occupied during the first 3 months of the year alone, 21% below the last 5 years’ average for the same period. This number can be explained by the low occupancy levels registered in the big European cities, such as Paris, (- 37%), and Madrid (-47%).

But it should be noted that the occupancy level during this period is «often influenced by transactions concluded during the previous year’s last quarter», apart from the fact that this year’s occupancy was exceptionally limited by some governmental lockouts caused by the pandemic.

The results from the second quarter will suffer even more from the effects of the crisis. «It is expected for the second quarter of 2020 to show the effects of the Covid-19 pandemic’s impact on the office rental segment all across Europe, with many postponed visits and experts unable to assess properties», it can be read in the release.

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