Summer solstice has come and gone and finally some signs of summer! One can be an optimist and pin hopes on a decent summer in the days and weeks to come. This could still be a summer of two parts! Speaking of two halves, the EMEA corporate occupier market could yet show some activity after a subdued start to the year.
The first months of the year were very similar to last year, showing subdued levels of occupier activity, below long term averages in many EMEA markets. Growth has been stymied across the region with weak labour market dynamics amidst a backdrop of austerity and uncertainty, both political and economic. However, improving sentiment is driving activity in select emerging markets and confidence is slowly returning to other more established markets in Europe. London, for example, has shown the sharpest increase in activity since 2010.
The first months of 2013 have also seen polarisation at both the regional and market level in Europe, the Middle East and Africa. Western Europe and the Eurozone are still expected to be impacted by negative economic fundamentals. Occupiers in these markets remain cautious and activity has been driven primarily by renegotiations and lease events, as opposed to expansionary growth. Portfolio optimisation features as a high priority on the corporate agenda, but is becoming more challenging in markets where development is frozen and available options are thin. While rents have increased in some regions and remained stable in others, some markets such as Paris CBD and Milan saw softening of rents. Polarisation trend is also being observed within markets, with growing divergence between prime and secondary locations.
Central and Eastern Europe also showed evidence of this polarisation albeit in a slightly different backdrop. Events in the Eurozone have somewhat dampened the confidence in these markets and affected the prospects of export. However, this region has still seen modest increases in occupier activity partly due to growth in off-shoring activity – a trend expected to continue through the rest of the year.
Conditions in the Middle East and Africa showed great variance between markets. Upgrading the quality of space remained a key driver of activity. Markets such as Abu Dhabi, Riyadh and Jeddah, maintained their occupier-favourable status, with choice increasing on the back of new supply. However, prime rental conditions in some markets like Dubai and Johannesburg are beginning to harden. Once again, this highlights the polarisation trend between the most prime and more secondary locations and projects.
Our latest Q2 EMEA Property outlook suggests signs of recovery in select core markets, whilst occupier conditions for the broader region will remain tough. Rental growth in the Eurozone markets is forecast to be in line with weaker economic growth, however, rents in the UK and Nordic office markets are expected to rise with London and Oslo expected to see the largest increases, followed by sharp increases in Madrid and Dublin. This patchy recovery will keep the markets polarised at both local and regional levels for another 12 months.
I can see some sunny spells outside my window as I wind up this blog. I know this is not a forecast for days as bright as gold, but patchy sunshine is welcome too!
To explore the full range of markets we cover and for a deeper insight into each of these, read our EMEA Occupier Conditions Report