Prime CBD rents are now on average 4% higher year-on-year (yoy) and 2% above the 2007-2010 rental peak, according to Savills' latest European Office Market report for Q1 2018.

The lack of affordable good quality space has pushed tenants into non-CBD locations where rents are still on average 70% lower than in CBDs, but are now rising 5.6% yoy and are currently 8% above the five-year average.
 
'Across Europe, we are seeing that the volume of new space being delivered is not enough to meet current demand, so tenants are looking at another two years of supply shortage,' said Alice Marwick, associate director of European Research at Savills. 'Limited supply and rising rents have resulted in occupiers becoming more flexible in their demands; tenants are more willing to move from their preferred location within the core for a better building and cheaper rent in secondary locations.'
 
Polarisation remains a feature in Europe
Robbie Stewart, associate director, tenant representation at Savills, added: 'Strong polarisation remains across Europe, with markets such as Manchester, Vienna and Paris CBD experiencing exceptionally strong annual take-up increases of 110%, 69% and 49% respectively. These markets are also seeing the quarterly take-up exceed the five-year average. On the other end of the spectrum, Amsterdam, Brussels and Paris La Defense saw annual take-up levels fall 74%, 19% and 23% respectively.'
 
Few markets have a vacancy rate above 10% and just under one third of the markets are seeing the vacancy rate fall below 5.0%. Savills expects supply will continue to remain tight until 2020 at the earliest.

The average vacancy rate will continue to fall to below 6.2%, led by a continued squeeze in the German markets and Sweden, the report predicts. As a result, more tenants will turn to serviced office providers for prime space and vacant space will be found in older office stock in secondary locations.