On my recent journey into the office it dawned on me that the overabundance of scarf, hat and glove-wearing tube travellers could mean only one thing: winter is on the way. It doesn’t seem that long ago that we were last reaching for our winter woollies but the decidedly cool air is a reminder that time keeps on ticking.
For some in the property market the countdown to further rental growth can’t tick quickly enough. Our most recent European Property Clock was a boon for landlords, with more markets moving into the “rental growth” quadrant. A handful of markets were ringing-in some serious growth, including Moscow, Stockholm and London. But, is occupier demand well and truly “recovered” and is this likely to translate into further rental growth?
There is definitely more movement in the market and tenants appear to have more freedom to act than they did earlier in the year. Occupiers are increasingly committing to deals, and while take-up fell slightly over the summer, year to date volumes across Europe were up nearly 40% on 2009.
Regardless, I think it’s too early to call a full recovery. The fact that economic growth may have peaked in the second quarter has left occupiers feeling a little cautious. Unemployment could continue to rise and public spending cuts could endanger the recovery. Tenant activity is therefore likely to be stop-start, with no single sector driving growth. This, combined with a lack of expansion on the corporate agenda, will most likely result in take-up volumes which are broadly in line with the long term average of 10.2 millions sq m.
That doesn’t preclude the presence of further rental growth in the coming months. On the contrary, I fully expect rents in a number of markets to tick upwards. However, this won’t be driven by a sustainable upswing in demand for office space. Instead we are likely to see acute shortages on the supply side drive further rental growth. Completions are declining with around 1.2 million sq m completed in the third quarter across Europe. This reflects a fall of 16% in comparison to Q2 and 15% compared to the five year average. A lack of quality space will be an increasing trend across many markets and will be the main driver of further rental growth.