High quality offices in core European markets remain in short supply, as businesses resume decision making, despite increased costs, according to research from Savills.
Office vacancy levels remain low in core European markets led by Paris CBD (1.9%), Cologne (3.3%) and Hamburg (3.8%).
At the same time, these markets continue to observe strong rental increases as occupiers are increasingly looking for best in class offices in accessible locations.
In Q3 2023, European office take-up reached 1.9 million m2, 11% down on the five-year average, but up 8% quarter on quarter as businesses resume decision making despite higher costs. Madrid, Bucharest and Munich all recorded take up above the Q1-3 five year average.
Savills forecasts European full year 2023 office take-up to fall by 18% year on year, however the international real estate advisor anticipates that take up will increase by 1% in 2024.
Mike Barnes, associate director, European research at Savills, said: 'Given construction delays and many developers being unable to secure financing for new schemes, the provision of high quality office space is likely to remain undersupplied in Europe.
'As a result, prime space in central locations is becoming increasingly competitive for tenants, supporting CBD office rents. For example, we have seen a 6% increase in rents in Paris La Défense as even higher rents in Paris CBD have forced some occupiers to move back to La Défense.'
Christina Sigliano, EMEA head of global occupier services at Savills, said: 'The increasing competitiveness for prime stock means many occupiers are willing to pay a higher rental premium.
'We therefore expect rental growth to continue on an upward trajectory for prime offices as new stock delivered to the market remains constrained. We anticipate lease incentives to increase further for older stock in periphery locations unless they undergo comprehensive refurbishment.'