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RESEARCH EUROPEAN OFFICE MARKET 2015 PROPERTY DEVELOPMENT TRANSACTION CONSULTING VALUATION PROPERTY MANAGEMENT INVESTMENT MANAGEMENT Contents Office Market 4 Lyon 28 Investment Market 6 Madrid 29 Amsterdam 8 Manchester 30 Athens 9 Marseille 31 Barcelona 10 Milan 32 Belgrade 11 Moscow 33 Berlin 12 Munich 34 Birmingham 13 Oslo 35 Bratislava 14 Central Paris 36 Brussels 15 Prague 37 Bucharest 16 Riga 38 Budapest 17 Rome 39 Dublin 18 Saint Petersburg 40 Frankfurt 19 Stockholm 41 Geneva 20 Tallinn 42 Hamburg 21 Vienna 43 Helsinki 22 Vilnius 44 Istanbul 23 Warsaw 45 Lille 24 Zurich 46 Lisbon 25 Glossary 48 Central London 26 Contacts 49 Luxembourg 27 Editorial Brighter economic prospects for Europe clouded by political uncertainties. The global economic situation has never been as supportive to European economic growth as now. At the same time, many significant geo-political events will be ongoing across Europe in 2015. Indeed the ongoing conflict in Ukraine is not solved and will be the fundamental external issue for the European Union to deal with in 2015. The recent electoral victory by the far left Syriza party in Greece has brought, again, the Greek debt crisis to the fore. However we believe it will have less impact on the European economy this time round given the concentration of its debts in the hands of government institutions. Nonetheless it is still uncertain as to how the situation will evolve over the next few months. Going forward, the Spanish and UK elections could have a significant impact. In Spain recent polls of voter intention show that the left wing Populist Party, Podemos, is ahead of its rivals. Like Syriza in Greece, it seeks to address the economic malaise that followed in the wake of the European debt crisis. The upcoming UK election could be equally critical because of the promise by the Conservative party of an “in/out” referendum on EU membership if they are returned to power. Despite these strong political uncertainties, there is reason to be optimistic for economic development in 2015. As inflation in the Eurozone is moving deeper into negative territory, the European Central Bank (ECB) has just started its quantitative easing (QE) policy which has already had a significant impact. Divergent expectations in central bank policy now exist. Hikes in interest rates are expected to start in 2015-2016 in the US and the UK and the start of QE in the Eurozone has led to a sharp depreciation of the Euro against the major currencies. With the decrease in oil prices likely to be sustained for some time, there are now strong structural pillars that will support the Eurozone. Following the strong UK recovery, Europe’s economic growth expectation is poised to strengthen in 2015. On the back of these positive economic developments, we expect that the fundamentals in most European office markets will improve significantly in 2015. Christophe PINEAU MRICS Head of International Research Office Market The European office market started to grow again in 2014 The improvement of economic conditions and the better labour market performance in 2014 positively impacted the office markets in Europe. Office take-up in our sample of 35 European cities totalled closed to 11.7 million m² in 2014, rebounding by 10% over twelve months. The re-emergence of large deals supported strong results in most markets, especially Central Paris, Berlin and Brussels. Cost reduction and rationalisation remained the main drivers of demand and occupiers continued to favour new buildings in well-located areas. Despite a significant rise in office take-up, the average vacancy rate only decreased by 10 basis points and still stood above the 10% threshold. Overall, vacant space reduction was offset by a stronger level of completions and relocation of tenants led 2014 Amsterdam Athens Barcelona Belgrade Berlin Birmingham Bratislava Brussels Bucharest Budapest Central London Central Paris Cologne Dublin Düsseldorf Edinburgh Frankfurt Geneva* Glasgow Hamburg Helsinki* Istanbul* Lille Lisbon Luxembourg Lyon Madrid Manchester Marseille Milan Moscow Munich Oslo Prague Riga* Rome Saint Petersburg Stockolm* Tallinn* Toulouse Vienna Vilnius* Warsaw Zurich* 229,900 n.a 233,700 53,900 609,000 66,300 155,000 437,800 233,800 251,600 1,490,900 1,807,800 241,000 246,900 325,000 80,100 411,000 -40,800 85,500 513,000 23,600 469,600 165,800 126,500 214,300 242,600 370,100 189,100 126,400 275,300 506,900 597,000 100,000 189,100 39,300 110,800 189,100 175,000 17,700 139,900 250,000 34,300 400,000 31,200 Take-up (m²) 2013 236,200 n.a 172,900 25,800 453,000 61,700 80,000 314,600 173,900 190,600 1,199,300 1,597,400 276,000 195,700 415,000 68,200 493,000 -21,000 77,200 440,000 9,500 323,800 171,400 77,800 150,000 251,700 365,200 160,600 106,700 231,500 523,300 603,000 110,000 151,000 12,300 159,900 153,900 17,900 35,300 109,800 300,000 30,400 451,000 31,200 *Net absorption - Note: Conversion rates as at 31st of December 2014 2012 234,500 n.a 157,000 48,900 548,000 46,500 55,000 442,000 243,200 174,100 919,600 2,024,000 261,000 145,000 346,000 54,900 580,000 -53,400 44,200 435,000 -118,100 263,200 160,300 102,000 147,500 189,300 253,600 156,600 156,400 241,400 991,200 715,000 160,000 125,000 28,800 66,500 141,100 48,800 32,100 129,600 320,000 15,500 441,000 136,400 to further release of second hand premises onto the market. However, the dearth of new supply in central areas kept rental values under pressure for prime properties. Consequently, the average prime rent rose (+3%), boosted by strong rental growth in buoyant markets like Central London and Dublin. The great contrast is that peripheral office districts still suffer from abundant vacancy and significant incentives have to be offered by owners to prevent decline in rental values. Economic growth and employment growth in Europe are expected to gain more momentum in 2015. Accordingly, office market fundamentals are likely to strengthen throughout the main cities in Europe. Q4 2014 17.3 13.0 15.4 9.0 4.7 11.1 13.8 10.3 12.6 16.2 5.1 8.3 6.6 13.2 10.6 12.2 11.4 1.6 10.3 6.3 13.0 16.7 n.a 12.1 3.2 6.2 16.0 15.6 n.a 13.3 17.0 6.2 8.1 15.4 8.5 8.5 12.0 9.0 5.5 5.1 6.6 2.3 13.7 2.8 Vacancy Rate (%) Q4 2013 Q4 2012 17.6 14.0 17.1 9.5 5.4 13.9 14.5 10.5 14.5 18.4 6.5 8.3 7.2 18.2 10.6 12.4 12.0 1.9 10.4 6.2 12.5 9.0 n.a 13.2 5.2 5.9 15.3 16.0 n.a 12.3 12.8 6.4 8.1 13.0 7.5 7.6 9.1 8.9 5.5 5.0 6.6 6.2 11.7 2.7 18.0 18.0 15.8 14.7 5.6 15.1 12.0 10.7 14.5 21.0 6.6 7.5 7.5 20.1 11.3 13.1 12.5 1.2 11.3 6.5 12.2 8.3 n.a 12.4 5.5 6.0 15.1 16.2 n.a 11.2 10.5 6.8 7.9 11.9 9.7 6.5 6.4 9.0 7.0 5.3 6.5 10.8 8.8 1.8 Prime Rent (€/m2/year) Q4 2014 Q4 2013 Q4 2012 365 216 222 198 276 409 186 265 216 192 1,603 750 252 484 312 387 456 689 389 300 355 384 220 228 480 280 318 436 265 480 550 414 582 234 168 400 400 502 210 206 309 180 276 805 350 168 210 168 264 389 186 265 216 192 1,487 750 258 377 330 402 456 746 369 300 345 384 220 222 480 315 288 409 260 490 613 402 391 246 152 400 439 486 204 210 306 177 300 814 345 180 216 168 264 375 186 265 216 192 1,364 830 258 325 312 402 432 797 369 288 338 359 200 216 480 285 288 409 270 510 571 396 407 252 144 410 395 486 200 209 300 168 300 814 Central Paris Berlin Moscow 1,200 1,000 800 600 400 200 BNP Paribas Real Estate Research 10 11 Q4 2013 12 13 000 m2 Q4 2014 Belgrade 09 Edinburgh 440 14% 420 12% 400 10% 380 8% 360 6% 340 4% 320 2% 2013 2,000 20% 1,800 18% 1,600 16% 1,400 14% 1,200 12% 1,000 10% 800 8% 600 6% 400 4% 200 2% BNP Paribas Real Estate Research Average prime rent Birmingham 08 Oslo 07 Glasgow 06 Rome 05 Marseille 14 Lisbon €/m2/year Toulouse 0 0% Lille 2% Bratislava 4 Prague 4% Saint Petersburg 8 Manchester 6% Luxembourg 12 Barcelona Total employment growth** Amsterdam 8% BNP Paribas Real Estate Research 16 Bucharest Cologne Lyon Dublin 13 Vienna 12 Budapest 11 Milan 10 Madrid Take-up* Düsseldorf 09 Warsaw Frankfurt 08 Brussels 07 Hamburg 06 Munich 05 Central London million m² BNP Paribas Real Estate Research €/m2/year Central London Zurich Central Paris Geneva Oslo Moscow Stockholm Dublin Luxembourg Milan Frankfurt Manchester Munich Birmingham Rome Saint Petersburg Glasgow Edinburgh Istanbul Amsterdam Helsinki Madrid Düsseldorf Vienna Hamburg Lyon Berlin Warsaw Brussels Marseille Cologne Prague Lisbon Barcelona Lille Bucharest Athens Tallinn Toulouse Belgrade Budapest Bratislava Vilnius Riga European office demand European office prime rent and vacancy (43 cities) Average vacancy rate 14 *35 cities - **27 European countries Source : Datastream, BNP Paribas Take-up volumes 2,000 2014 1,800 1,600 1,400 Prime rents and vacancy rates Vacancy rate 5 Investment Market New post crisis record in the investment market The commercial real estate investment volume in the 38 markets monitored in this report amounted to €108 billion (€74 billion for offices) making 2014 the best year since 2007. This represented a significant increase of 16% (20% for offices) compared to an already good year in 2013. 2014 was largely characterised by rising cross-border investment and a progressive but continuous decline in risk aversion. The global strength of real estate investment in the European markets is still concentrated in core and liquid assets even though more value-added and speculative deals were recorded. 2014 witnessed the recovery of the markets hardest hit by the crisis. With +122% and +278% growth recorded between 2013 and 2014, Dublin and Madrid are the best examples of resurgence. Few European countries still suffer from economic and political uncertainties. Central London little changed from 2013 and achieved the best volume in Europe with almost €30 billion invested. The pursuit of economic recovery will support all European markets. Moreover, the ECB announcement of a €1.1 trillion quantitative easing program will have a significant impact on property markets. By maintaining low bond yields, QE will assert the attractiveness of real estate. Thus, we will see further investor interest in good quality assets with long-term leases to high calibre tenants, pushing prime yields even lower in 2015. Total investment volume (€ million) 2014 2013 2012 Amsterdam Athens Barcelona Belgrade Berlin Birmingham Bratislava Brussels Bucharest Budapest Central London Central Paris Cologne Dublin Düsseldorf Edinburgh Frankfurt Geneva Glasgow Hamburg Helsinki* Istanbul Lille Lisbon Luxembourg Lyon Madrid Manchester Marseille Milan Moscow Munich Oslo* Prague Riga Rome Saint Petersburg Stockholm Tallinn The Hague Toulouse Vienna Vilnius Warsaw Zurich 2,148 n.a 1,327 49 4,276 1,068 435 1,790 574 430 29,265 16,834 1,335 3,590 2,161 627 5,318 364 980 3,824 3,536 1,008 242 317 837 856 3,692 1,712 548 1,229 3,125 5,347 8,148 1,990 130 717 278 7,454 85 374 424 2,045 178 1,278 n.a 1,546 n.a 1,216 0 3,589 980 125 1,136 242 280 30,840 12,437 1,083 1,614 2,078 325 3,893 687 640 2,674 2,380 720 227 280 629 905 976 1,042 269 1,354 7,135 4,740 4,738 1,300 172 1,107 689 4,267 86 368 248 1,030 126 1,107 n.a 1,008 n.a 391 30 3,848 586 25 584 127 100 19,560 12,301 565 493 832 288 3,230 662 395 2,164 2,070 360 294 115 318 873 595 531 188 469 7,040 3,624 5,884 610 15 637 504 5,141 129 241 99 1,165 30 773 n.a *Data for the country - Note: Conversion rates as at 31st of December 2014 Office investment volume (€ million) 2014 2013 2012 1,462 n.a 993 0 1,720 614 65 1,539 153 200 25,286 13,119 720 1,062 1,296 309 3,692 203 214 2,239 894 477 177 211 808 573 1,211 1,112 313 904 1,250 2,999 4,701 600 41 268 65 5,696 39 160 194 1,495 128 1,129 n.a 1,007 n.a 375 0 1,621 361 75 978 221 190 26,077 9,540 453 764 1,236 239 2,557 394 158 1,454 923 260 142 227 490 655 299 518 17 795 3,377 2,899 2,856 610 30 562 140 2,586 18 241 73 435 92 451 n.a 616 n.a 230 0 1,881 229 22 342 60 33 17,047 9,213 256 341 618 34 2,209 462 225 1,128 1,278 171 223 69 206 523 441 154 71 321 2,816 2,791 2,245 385 9 202 58 2,751 41 107 65 490 5 633 n.a Net office prime yield (%) 2014 2013 2012 5.45 8.75 5.50 9.00 4.45 5.25 7.15 5.00 8.00 7.75 3.50 4.00 4.80 4.75 4.70 5.25 4.50 3.30 5.25 4.40 4.70 6.75 5.60 6.25 4.60 5.30 5.00 5.25 6.10 5.40 10.50 4.25 4.75 6.00 7.25 5.80 11.00 4.45 7.00 6.40 6.00 4.70 7.00 6.15 2.90 5.55 10.00 6.50 9.50 4.70 5.75 7.25 5.00 8.25 7.75 3.75 4.50 4.85 6.25 4.75 5.75 4.65 3.20 5.75 4.65 5.20 7.25 5.70 7.50 5.10 5.70 6.00 5.75 6.10 5.75 10.00 4.40 5.00 6.25 7.75 6.25 10.00 4.50 7.25 6.30 6.20 4.90 7.50 6.00 2.80 5.70 9.00 6.00 9.50 4.80 6.50 7.25 5.00 8.25 7.75 4.00 4.50 5.20 7.00 4.90 6.50 4.75 3.30 6.50 4.70 5.20 7.00 6.00 7.75 5.25 6.10 5.90 6.50 6.10 5.60 9.00 4.60 5.25 6.50 8.75 6.10 10.50 4.50 8.25 6.30 6.20 5.10 8.50 6.25 3.20 Zurich Geneva Central London Central Paris Munich Hamburg Berlin Stockholm Frankfurt Luxembourg Düsseldorf Helsinki Vienna Dublin Oslo Cologne Brussels Madrid Birmingham Edinburgh Glasgow Manchester Lyon Milan Amsterdam Barcelona Lille Rome Prague Toulouse Marseille Warsaw Lisbon The Hague Istanbul Tallinn Vilnius Bratislava Riga Budapest Bucharest Athens Moscow Saint Petersburg 8% 6% 4% BNP Paribas Real Estate Research Vienna 60 40 20 12 13 0,0 14 € billion € billion 30 3,5 24 2,8 18 2,1 12 1,4 6 0,7 BNP Paribas Real Estate Research 80 BNP Paribas Real Estate Research 140 100 6.0% 5.5% BNP Paribas Real Estate Research Real Estate investment Düsseldorf Moscow Madrid Warsaw Manchester Dublin Barcelona Milan Luxembourg Cologne Birmingham Prague Lyon Istanbul Marseille Edinburgh Rome Glasgow Lisbon Geneva Budapest Toulouse Lille Bucharest Vilnius Saint Petersburg Bratislava Riga Tallinn 11 Amsterdam 10 Brussels 09 Berlin € billion Hamburg 08 Munich 07 Frankfurt Stockholm 06 Central Paris Central London European real estate investment volume (38 cities) Office investment Average European prime yield (44 cities) 7.0% 120 6.5% 06 07 08 09 10 11 12 13 14 Office investment volumes 2013 2013 2014 Net office prime yield 2014 12% 10% 7 Amsterdam Little impact on office take-up from economic recovery Take-up - Employment Economic sentiment in the Netherlands improved noticeably over the year. After two years of contraction, the economy will grow by 0.8% in 2014. Prospects are positive, as growth is expected to pick up further to 1.2% in 2015 and 1.5% in 2016. The labour market improved slightly with the unemployment rate expected to decline to 6.75% in 2015, although still high by Dutch standards. Office takeup will remain weak in upcoming years. In 2014 total takeup reached 230,000 m², 3% down on 2013. Service sector companies are still optimizing their real estate portfolios. The vast majority of office transactions are replacements, resulting in lower net absorption figures. 400 4% 300 3% 200 2% 100 1% 0 0% Office take-up Employment growth (services)* BNP Paribas Real Estate Research 000 m2 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for the Netherlands Low grade A supply is seeing development go forward Prime rent - Vacancy rate Due to modest office take-up performance, the overall vacancy rate stayed high at 17.3%. Improvements in market conditions were seen in the CBD (ZuidAs). In this district, strong demand translated into a 5% rise in the prime rent to €365/m²/year, which is expected to go up again in 2015. The market still suffered from a lack of high quality supply in prime locations, enabling new office development to go forward in the main business district. Several secondary locations benefit from the fierce competition in the central areas. This will help push up rents in secondary markets in 2015, allowing owners to undertake renovation of their existing stock to meet occupier demand. Obsolete properties in unattractive locations are likely to have no future office use. The government actively stimulates the withdrawal of this office space from the market through incentives for redevelopment to other uses. 400 24% 350 20% 300 16% 250 12% The upturn of the economy greatly improved the willingness to invest in the real estate market. Office investment totalled €1.5 billion, representing 70% of the total investment volume in Amsterdam (€2.1 billion). Foreign investors were the main source of buyers in their global search for secure assets with good yields. Amongst them, German institutional investors targeted prime assets especially in Amsterdam, supporting new office development that is mostly pre-let. Conversely, UK and US investors focused on non-performing properties and loan portfolios which are being sold at significant discounts. The strengthening activity triggered a decline in prime yields of 35 basis points to reach 5.45% at the end of 2014. This trend should continue for prime assets. However, the lack of prime products will push investors to look at value-added properties. Office vacancy rate BNP Paribas Real Estate Research Office prime rent 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Investment - Yield € million Office investment Other investment Office prime yield 2,500 7.0% 2,000 6.5% 1,500 6.0% 1,000 5.5% 500 5.0% 02 03 04 05 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research Foreign investors dominate investment market €/m2/year Athens Despite the increased volatility, key macroeconomic indicators in Greece have stabilised or turned positive for the first time since 2008. Economic activity expanded by 0.8% in 2014 and the rate of decline in employment has been slowing since 2012. The economy is expected to continue to stabilise in the near term. Although confidence has been improving, uncertainties surrounding the outcome of the ongoing negotiations with the country’s creditors remain the biggest threat to the economic recovery. Employment Employment growth (services)* 8% 6% 4% 2% BNP Paribas Real Estate Research Key economic indicators are stabilising 0% -2% -4% -6% -8% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Greece The signs of improvement in the Greek economy are gradually being expressed in the real estate market. After 5 years of decline, rents in the CBD and in most traditional office location in Athens started to improve in 2014. The market witnessed several relocations of large companies to bigger and better space. Tenants with bargaining power have been able to take advantage of grade A quality accommodation at lower rents. Polarization is evident in the market as the stock of ageing buildings continues to rise. The vacancy rates for grade C and D units range between 20% to 30% whilst grade B units stand between 5% to 10% and grade A between 3% to 6% as demand for good quality buildings is predominant. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 500 25% 400 20% 300 15% 200 10% 100 5% BNP Paribas Real Estate Research Improvement is supporting rents 01 02 03 04 05 06 07 08 09 10 11 12 13 14 The notable drop in real estate prices in the last 6 years enabled a number of transactions in 2014. These contributed to cessation in the increase of prime yields. Yield Office prime yield 11% 10% 9% 8% BNP Paribas Real Estate Research High yields and low investment volumes 7% 6% 5% 04 05 06 07 08 09 10 11 12 13 14 9 Barcelona Around 300 new lease contracts were closed for offices in Barcelona during 2014, a remarkable figure which comfortably exceeds the record of 282 deals signed in 2007. In terms of floor space, take-up amounted to 233,700 m2, representing an improvement of 35% on 2013. This data together with lower levels of vacancy shows that the office market in the Catalonian capital turned a corner in 2014. The main drivers for companies changing offices during 2014 continued to be relocation and consolidation, although expansions grew in importance towards the close of year. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 500 10% 400 8% 300 6% 200 4% 100 2% 0 0% -2% -100 BNP Paribas Real Estate Research A major improvement in office take-up 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Spain Greater activity on the demand side and a speculative new-build market that remains inactive had an impact on availability in the market. Barcelona closed 2014 with 91,000 m2 less vacant floor space than 2013, pushing the vacancy rate down to 15.4%. Although the figures are somewhat modest, the trend is heartening: this percentage figure has fallen for five consecutive quarters. It has also led to positive performance in rents. In average terms, rental values in the CBD stood at €194/m²/year at the close of year. This level is distancing itself from the trough (€181/m²/year) seen in 2013 and will strengthen during 2015. The prime rent (€222/m²/year) rose for the first time in five years during the second quarter of 2014. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 350 20% 300 16% 250 12% 200 8% 150 4% BNP Paribas Real Estate Research Prime rent rises for the first time in five years 01 02 03 04 05 06 07 08 09 10 11 12 13 14 With a total volume of €7 billion in 2014, Spain recorded its second-best real estate investment level since 2007, the peak of the previous economic real estate cycle. In Barcelona, active acquisitions and capital markets are a consequence of an improvement in investor sentiment towards Spain. The commercial real estate investment volume reached €1.3 billion in 2014, 9% up on 2013. Nevertheless office investment turnover surged to €1 billion (+165% compared to 2013). The increased interest from investors led to a strong compression of net office prime yields. They decreased to 5.5% compared to 6.5% 12 months ago. Investment - Yield € million Office investment Other investment Office prime yield 2,400 7.0% 2,000 6.5% 1,600 6.0% 1,200 5.5% 800 5.0% 400 4.5% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research Second best year for the office investment market Belgrade Net take-up reached nearly 54,000 m² with a further 9,000 m² accounted for by leases renewals. Take-up increased significantly in 2014 compared to last year reflecting job creation over the past two years. Traditionally, most of the activity occurred within New Belgrade CBD zone. Most occupiers have been seeking smaller units of up to 500 m², although several transactions exceeded 1,000 m². Strongest demand by business sector came from IT, followed by the public and consumer goods sectors. Take-up - Employment 000 m2 Office take-up Employment growth* 100 10.0% 75 7.5% 50 5.0% 25 2.5% 0 0.0% -25 -2.5% -50 -5.0% -75 -7.5% 05 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research Job growth is resulting in expansion of take-up 14 *Datastream / Serbian Statistical office - Data for Serbia Office prime rent €/m2/year 25% 250 20% 200 15% 150 10% 100 5% 05 Belgrade office market is beginning to create interest After the European commission in Brussels decided to launch negotiations on EU membership with Serbia in March 2012, the first inter-governmental conference was held in January 2014. This EU approach was a positive signal for foreign investors, who started several office projects in the Belgrade market in the CBD. This is favourable for further development. Office vacancy rate 300 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research The limited office space in the Belgrade market and the increasing demand from tenants caused a large drop in total vacancy rate from previous years. With only two buildings delivered in 2012 and one small scale office building in 2014, vacancy rates dropped as new companies entered and existing tenants expanded within the Belgrade market. Rental levels increased significantly in the New Belgrade CBD zone due to no development of Grade A and B office buildings and the subsequent lack of new supply. As a result, the market has become landlord driven and potential tenants are forced to accept landlord terms. It is expected that rental levels of Grade A and B office buildings will follow a similar trend during 2015. Prime rent 14 Investment - Yield € million Office investment Other investment Office prime yield 300 13% 250 12% 200 11% 150 10% 100 9% 50 8% 05 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research The lack of new supply is pushing rents up 14 11 Berlin At 609,000 m², take-up in the Berlin office market set a new record in 2014, exceeding the long-term average of around 19% and bettering the 2013 figure by more than one third. No other major German city matched such a performance in 2014. This result gives the German capital first place in the national ranking, ahead of the traditionally strong Bavarian capital, Munich (597,000 m²). The increase in take-up volume was not only due to the revival of the deal segment over 10,000 m² but above all to a more buoyant demand across all size bands. Furthermore, almost all the Berlin submarkets stepped up their turnover compared with the year before. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 750 2.5% 600 2.0% 450 1.5% 300 1.0% 150 0.5% 0 0.0% BNP Paribas Real Estate Research A record result in take-up volume 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Germany In the course of the year, the lively demand led to a further fall in vacancy, dropping below the 5% mark by Q4 2014 (4.7%) for the first time in well over ten years. The total volume of vacant office space now stands at 888,000 m², 13% lower than at the same time last year. The volume of modern unoccupied premises was actually cut by 32% and now represents less than one quarter of total vacancy – an extremely low level. The combination of buoyant demand, sustained low level of construction activity and falling vacancy led to a steady increase in the prime rent throughout the year. At the end of the fourth quarter it reached €276/m²/year. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 400 10% 350 8% 300 6% 250 4% BNP Paribas Real Estate Research The vacancy rate fell below the 5% threshold 01 02 03 04 05 06 07 08 09 10 11 12 13 14 With an investment volume in 2014 of close to €4.3 billion, Berlin registered its best result since the boom year of 2007. This performance bettered the 2013 figure by 19% and the ten-year average by 27%. This strong result was achieved with comparatively few large deals in the triple-digit million range. In fact, only 7 sales were posted in this size segment and 3 of them were portfolio transactions included on a pro rata basis. All the other size bands together generated more than 150 deals, underlining the broad basis of demand. Offices represented 40% of the total investment volume versus 45% in 2013. The buoyant demand coupled with limited supply has intensified competition among investors, especially in the core segment. Thus, the prime yield for office buildings has slipped further to 4.45%. Investment - Yield € million Office investment Other investment Office prime yield 8,000 6.0% 6,000 5.5% 4,000 5.0% 2,000 4.5% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research A very strong performance of the investment activity Birmingham Take-up rebounded to over 66,000 m² for the first time since 2008. This strong result was helped by the largest deal of the year completing in the final quarter: HS2 taking 9,100 m² across the 3rd to 6th floors for 15 years within the Two Snowhill scheme in December. Other key deals over the year included Vodafone for 2,100 m² at Colmore Plaza, HSBC Private Bank on 3,400 m² at 120 Edmund Street and DAC Beachcroft at 9 Brindleyplace for 3,000 m². These transactions show occupiers’ renewed confidence within the Birmingham market. Solid GDP and employment forecasts bode well for 2015, therefore occupational levels should be in line with the historic average. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 90 3% 60 2% 30 1% 0 0% -1% -30 BNP Paribas Real Estate Research Renewed confidence in the occupier market 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for the UK Prime rents have edged up throughout 2014 to stand at £323/m²/year (€409) established at Two Snowhill in the CBD. Supply fell over 20% during 2014 with a raft of office to residential conversions. These change of use schemes combined with increased occupier demand, led to a significant fall in office vacancy levels. The supply imbalance is set to continue with a dearth of Grade A space currently on the market and no new developments are set to come on-line until late 2015 at the earliest, when Brockton capital should complete circa 5,000 m² at the MailBox. Schemes with 10,000 m² + floorplates required by professional occupiers will not be completed until late 2016 at the earliest. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 450 18% 400 15% 350 12% 300 9% 250 6% BNP Paribas Real Estate Research Sharp reduction in vacant space 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Investment into the Birmingham office market rebounded in 2014 with volumes touching £481 million (€610 million) by the end of the year, which was the strongest year for volumes since 2007. Like many of the UK’s regional office markets, Birmingham was targeted mainly by the UK institutions, who accounted for £325 million (€412 million) of purchases, approximately 68% of the total volume transacted. The biggest deal of the year was M&G Real Estate’s purchase of Two Snowhill for £140 million (€177 million) at 5.8% net initial yield. The prime yield continued to move downwards throughout the year to stand at 5.3% by the end of 2014. The investment market should remain buoyant in 2015 with further yield compression expected. Investment - Yield € million Office investment Other investment Office prime yield 2,000 8% 1,500 7% 1,000 6% 500 5% BNP Paribas Real Estate Research Surge in office investment volume 01 02 03 04 05 06 07 08 09 10 11 12 13 14 13 Bratislava The Bratislava office market enjoyed particularly strong activity during the second and the fourth quarters of 2014, resulting in net office take-up almost doubling and topping the last 10 years’ performance. This surge was mainly due to several large transactions such as the 17,000 m² in the Westend Gate pre-let to IBM or the 19,000 m² taken by Johnson Controls. Market activity mostly involved international companies, mainly from the finance and banking sector, followed by the IT sector. The total office stock reached 1.5 million m², of which 60% is classified as grade A. One of the biggest projects completed in 2014 was the Westend Gate building offering 35,000 m² of office space. By the end of 2015, the first phase of Twin City should be finalised, adding further 16,000 m² to the market. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 200 4% 150 3% 100 2% 50 1% 0 0% 05 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research Large scale deals boosted take-up 14 *Oxford Economics - Data for Slovakia €/m2/year Office prime rent 15% 200 12% 150 9% 100 6% 03 Investment activity at its strongest since 2006 Activity in the Slovak investment market is at its strongest since 2006. Investors targeted the capital, focusing on prime properties, searching for a top quality building with good location, long lease terms and strong tenant covenant. Offices and mixed-use buildings were the leading sectors whereas outside the Bratislava investment market was driven by retail and industrial properties. The largest investment transaction in 2014 in Slovakia was the acquisition of the Eurovea retail and office property in Bratislava. The prime initial yield is currently at 7.15%, having slightly dropped since the end of 2013. The initial yield ranged between 8.50 and 9.00% in well-leased secondary properties in good locations. Office vacancy rate 250 04 05 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research Prime rents in Bratislava were unchanged at €186/m²/year despite increase in letting activity. In secondary locations the average rents range from €120 to €156/m²/year. In 2015 effective rents will be lower, as landlords grant attractive incentive packages. The vacancy rate decreased slightly to 13.8%. It is expected to increase in 2015 with release of second hand offices resulting from relocations to the newly supplied modern offices. Prime rent - Vacancy rate 14 Investment - Yield € million Office investment Other investment Office prime yield 800 8.5% 600 7.5% 400 6.5% 200 5.5% 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research Prime rents are unchanged even with better occupancy Brussels 2014 was marked by an impressive bounce back in takeup volume. In 2014, some 437,300 m² were let or sold in the Brussels office market, corresponding to a 39% increase compared to 2013 and standing 5% above the 5-year average. Take-up activity in 2014 saw the return of the public sector to the spotlight, which accounted for 44% of the take-up with a total transacted volume of 192,300 m². The largest deal was the lease agreement signed by the Flemish government on 50,000 m² in the "Meander" project on the Tour & Taxis site. In an uncertain economic climate, the activity emanating from corporates remained primarily driven by cost issues, with virtually no demand based on expansion. Totalling 245,000 m², the office demand of the private sector remained 7% below the 5-year average. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 750 2.5% 600 2.0% 450 1.5% 300 1.0% 150 0.5% BNP Paribas Real Estate Research Take-up underpinned by public sector demand 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Belgium Investment activity was boosted by large deals With €1.5 billion invested in 2014, the office investment market in Brussels continued to perform extremely well. Thanks to big-ticket deals, the investment volume recorded the strongest activity since 2007. The 2 main transactions of the year included the sale of North Galaxy for €475 million and the acquisition of Covent Garden. Considering the persistent supply tension in the "Core" market due to limited supply, some British players and US funds are taking advantage of "Core+" or "added value" asset sales to make their entrance onto the Brussels market. The abundance of capital to invest in real estate and the shortage of products caused a contraction of 25 bps in prime yields for 3/6/9year leases since 2013, standing at around 6.00% at the end of 2014. The prime yield for assets with long-term leases continues to fluctuate at around 5.00%. €/m2/year Office prime rent Office vacancy rate 350 14% 300 12% 250 10% 200 8% 150 6% BNP Paribas Real Estate Research At the end of 2014, the vacancy rate in Brussels was at 10.3%, slightly down on the previous year. It reflects a supply of 1.36 million m² with 63% outside of the CBD. The level of quality supply continued to fall due to the small number of speculative projects delivered onto the market. This trend should continue in the quarters ahead, given the developers’ cautiousness and the lack of financing to launch speculative schemes. At the same time, the market is still suffering from tenants’ strategy of reducing their office space, thus increasing availability of second hand premises. As a result, the polarisation of supply is not set to reverse for some months. Headline rents remained stable overall in the Brussels office market. The office prime rent in the Leopold District is stable at €265/m²/year, whereas the average rent decreased to €157/m²/year due to the deterioration of supply quality. Prime rent - Vacancy rate 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Investment - Yield € million Office investment Other investment Office prime yield 2,500 6.0% 2,000 5.5% 1,500 5.0% 1,000 4.5% 500 4.0% BNP Paribas Real Estate Research Slight reduction in vacant space 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Bucharest The leasing activity increased by 34% in 2014 compared to 2013 reaching 233,800 m² of office space, excluding renewals and re-negotiations. Office transactions have been concentrated in the northern part of Bucharest, representing 66% of the total take-up. The geographic pattern of transactions mirrors the concentration of office development activity as almost 50% of newly completed offices in 2014 were located in this same northern submarket. The major contributor to performance was the IT&C industry that generated around 40% of the total take-up. Large tenants had to consider pre-lease of office premises as the existing stock did not provide sufficient good quality vacant space. As a consequence, pre-lets accounted for approximately 20% of the total take-up in 2014. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 500 15% 400 12% 300 9% 200 6% 100 3% 0 0% BNP Paribas Real Estate Research Office take-up on the rise in 2014 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Romania The vacancy rate declined to around 13% thanks to take-up absorbing space faster than the volume of office completions being delivered. However this downward trend was also counterbalanced by the significant share of relocations, a main driving force of demand that generated further vacant space. Take-up included pre-lets as well, which do not affect the vacancy rate of the existing stock. Consequently, the prime rent still remained stable for the fourth consecutive year at around €216/m²/year. On the one hand, the completed developments and proposed schemes that were already pre-let have lessened the pressure on prices. On the other hand, the upward pressure on rents, specifically for prime offices, is getting stronger. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 300 25% 250 20% 200 15% 150 10% 100 5% BNP Paribas Real Estate Research Equilibrium between demand and supply sees still no change to rents 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Driven by improvement in occupier market fundamentals, the prime office yield went down by 25 bp during the second half of 2014, reaching 8.0% at the end of the year. Investor interest is reflected by the significant increase of the total investment volume during H2 2014 with each asset class contributing to recovery. The most significant transactions have been concluded by foreign investment funds that consolidated portfolios acquired during previous years. The local market is benefitting from the availability of foreign financial resources. With higher returns, a favourable economic context and the further sales of commercial property, Bucharest has very good prospects for its investment market during 2015. Investment - Yield € million Office investment Other investment Office prime yield 800 12% 600 10% 400 8% 200 6% 04 05 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research Growing investor interest results in yield compression Budapest In 2014 office take-up rose to an outstanding 251,600 m² and reached its highest figure over the past five years. This represented a 32% increase compared to 2013. The market was boosted by large deals: 15 lease agreements over 3,000 m² were recorded in 2014. The majority of the large deals were pre-let agreements and therefore the proportion of pre-lets significantly increased, reaching 13% of total take-up. The public sector was the most active player of the market, 16% of the annual take-up was acquired by state-owned companies. This sector was followed by IT and telecom companies as well as Business Service Centres (BSC). Gross take-up including lease renewals grew by 25% compared to the previous year, reaching 465,600 m². Take-up - Employment 000 m2 Office take-up Employment growth (services)* 300 12% 250 10% 200 8% 150 6% 100 4% 50 2% 0 0% BNP Paribas Real Estate Research Record high volume of office take-up 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Hungary Office properties still in the main focus of investors The investment market showed increased activity in 2014. By the end of the year investment volumes rose by 54% compared to 2013. In line with 2013, office properties were the main focus of purchasers. Primary local property funds were the most active players in the acquisition of office i.e. Green House, Óbuda Gate, Vision Towers- North Tower, Dexagon. In the largest office investment transaction recorded in 2014, Eiffel Palace was bought by the National Bank of Hungary. Investors favour core assets with long-term income, properties with favourable price and the possibility of high capital gain in the long term. Due to the improving economic achievement of the country and attractive investment yields, international investors’ interest also turned towards Hungary. A number of investment transactions currently in the pipeline are expected to be concluded in 2015. €/m2/year Office prime rent Office vacancy rate 350 22% 300 20% 250 18% 200 16% 150 14% BNP Paribas Real Estate Research As anticipated, the vacancy rate for grade A and B offices continued its downward trend in 2014. Although the vacancy rate remained high, the lack of new supply and the record volume of take-up helped to reduce the vacancy rate to 16.2%. Concerning second hand premises, the availability of prime office space drastically reduced in the key office submarkets (CBD, Central Pest, Central Buda, South Buda). The volume of new supply remained low even though it doubled compared to 2013. It is expected to stay flat in 2015 with only 30,500 m² currently in the pipeline. Rental values varied according to the location and the quality of premises but remained overall stable over the year. Due to the strong leasing activity and the low volume of new supply, positive rental growth is forecasted for 2015. Prime rent - Vacancy rate 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Investment - Yield € million Office investment Other investment Office prime yield 2,000 10% 1,600 9% 1,200 8% 800 7% 400 6% 05 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research The office market is running out of large prime office space 14 17 Dublin Real GDP in Ireland grew by 5.3% y/y in 2014 sustained by a good level of exports and a robust domestic economy. It enabled further acceleration in employment growth in the service sector by the end of 2014. On the back of this very favourable economic backdrop, office take-up in Dublin showed a strong performance, improving by 26% compared to 2013. Demand from the TMT sector supported this upturn as it represented more than one third of the take-up. A set of large transactions from "dot-com" companies boosted the market, such as Facebook (11,741 m²), Yahoo (6,968 m²), Amazon (6,503 m²), or Dropbox (5,017 m²). It is worth noting that new tenants entering the Dublin office market contributed a large share of the take-up. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 300 6% 200 4% 100 2% 0 0% -2% -100 BNP Paribas Real Estate Research Ireland turns the corner into growth 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Ireland Record investment sales Investment in commercial real estate exceeded €4.5 billion in Ireland, way above the peak in 2006. Irish REITs became a dominant player in 2014 with over €1 billion invested. The largest purchases were an office and retail portfolio for €375 million by Green REIT and the Central Park Sandyford office and residential scheme for €311 million by Green REIT and Kennedy Wilson. UK and US investors are still present to support the Irish market with some major deals in Dublin, such as the Liffey Valley Shopping Centre bought by Hines and HSBC. We expect 2015 to be another busy year whether transactions are by way of loan sales or direct property sales. There remains a significant volume of assets still to be brought to the market from bank deleveraging. The competition over prime properties is pushing yields down below 5%. €/m2/year Office prime rent Office vacancy rate 700 24 600 22 500 20 400 18 300 16 200 14 100 12 05 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research The reduction in vacant office space in Dublin has accelerated since 2013 as no completion occurred over the last 2 years. The vacancy rate was down to 13.2% at the end of Q4 2014, comprising a large share of 1980’s and older generation buildings. The shortage of good quality new space has led to older buildings being refurbished and are filling up fast. The re-emergence of office development is visible with projects under construction, such as No. 1 Ballsbridge (15,600 m²), St. Stephens Green (6,900 m²) or in Hatch Street (12,000 m²). Lack of new supply and strong demand in the CBD drove the prime rent upwards by 28% over 2014 to €488/m²/year and there is still room to gain more ground in 2015. This level should encourage new office development over the next year. Rents also grew in suburban locations where occupier demand increased. Prime rent - Vacancy rate 14 Investment - Yield € million Office investment Other investment Office prime yield 4,000 8% 3,500 7% 3,000 6% 2,500 5% 2,000 4% 1,500 3% 1,000 2% 500 1% 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research The strongest rental growth in Europe Frankfurt Although office take-up rose in the final quarter (136,000 m²), Frankfurt produced a poor result for 2014 as a whole. The figure for the overall market area was 411,000 m², 17% down on 2013 and the worst performance in the past twenty years. The drop in turnover was due both to the not exactly easy economic framework and to the low proportion of large deals. Transactions for premises larger than 5,000 m² accounted for only 21% of total take-up against a longterm average of over 40% for this size band. One reason for this downturn is the restricted supply of sizeable modern premises, which discourage many would-be tenants from moving. The central office market zones of the City Centre accounted for more than 52% of aggregate turnover. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 800 2.0% 600 1.5% 400 1.0% 200 0.5% 0 0.0% BNP Paribas Real Estate Research Lack of large space limits letting activity 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Germany The reduction in vacancy already apparent since 2009 continued in 2014 and in the market as a whole the vacancy rate is 11.4%. At the end of the year, it stood at 1.8 million m² (5% less than 12 months before) and included 44% of modern premises. The largest amount of vacant space is located in the Inner City office market, where modern space actually accounts for 69 % of the unoccupied stock. This was due to the completion of buildings like the Taunusturm. The prime rent remained stable at €456/m²/year in 2014, achieved in the submarket Bankenviertel. With a top rent of €444/m²/year, the Westend district remains the second most expensive precinct. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 700 16% 650 14% 600 12% 550 10% 500 8% 450 6% 400 4% BNP Paribas Real Estate Research Vacancy continues to shrink 01 02 03 04 05 06 07 08 09 10 11 12 13 14 With a transaction volume of around €5.3 billion, the investment market registered its second-highest total of all time. It exceeded the already very good 2013 result by 37% and the ten-year average by 52%. The outstanding result was fuelled by a very large number of deals. Furthermore a whole series of large-volume transactions in the triple-digit million euro range boosted the market. Altogether, there were 11 such deals, including the mixed-use Palais Quartier, the Silberturm, the Trade Fair Tower and the Winx Tower project development on the MainTor site, an off-sell acquisition. In view of the tough competition among investors and the very favourable financing environment, the office prime yield slipped further down to 4.50%. Investment - Yield € million Office investment Other investment Office prime yield 8,000 6.0% 6,000 5.5% 4,000 5.0% 2,000 4.5% BNP Paribas Real Estate Research Second-best investment turnover ever 01 02 03 04 05 06 07 08 09 10 11 12 13 14 19 Geneva Once again the letting market has been driven by deals for units under 600 m²; there have been few transactions for units over 1,000 m² due to low job creation. Companies, such as Société Générale and Crédit Agricole, have been taking advantage of favourable rental conditions to relocate and regroup their staff in new or refurbished buildings. Such premises thereby released have been occupied for many years and are therefore ageing and in need of refurbishment. Over the first nine months of the year 6,300 m² of offices have been completed in the canton of Geneva. Although this looks like a relatively low figure, there are 190,000 m² of offices under construction, which in the coming years will add to the already abundant supply. Employment 000 m2 Employment growth (services)* 5% 4% 3% BNP Paribas Real Estate Research Low job creation leading to poor take-up 2% 1% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Switzerland According to OCSTAT – Office Cantonal de la Statistique, the vacancy rate fell from 1.90% to 1.55% in 2014, representing less than 70,000 m² of vacancy in the canton of Geneva. Published decline in vacancy is in sharp contrast to the reality on the ground. Indeed, market figures tend to indicate that supply has increased by 10% to about 220,000 m²; representing 5.4% of the existing stock. Supply still outstrips demand and we see that the widespread slide in rents that began in 2011 has continued. The prime rent is still falling and now stands at CHF 830/m²/year (€689), a fall of 17.4% since 2011. The average rent stands at CHF 537/m²/year (€446), having slipped by 4.4% in a year. Occupiers are not only benefiting from lower rents, but also substantial incentives such as staggered rents, rent-free periods or contribution in fitting out costs for their premises. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate* 900 2.5% 800 2.0% 700 1.5% 600 1.0% 500 0.5% 04 05 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research Prime rents under pressure 14 *OCSTAT - Office Cantonal de la Statistique Investment in commercial real estate hit a historic low in 2014 at CHF 438 million (€364 million). Investment in offices represented over CHF 247 million (€205 million), half of the figure for 2013, a record year that saw four exceptional office building sales. 2014 did not get the same boost with only two office buildings sold in the city centre and eight more in the suburbs. The prime yield edged up from 3.19% to 3.3%. The figures for 2015 already suggest a sharp rise in investment. The announcement in early January of a transaction between two major Swiss players for offices on Rue du Rhône for CHF 535 million (€444 million) and a yield close to 3.5% already exceeds the total for the whole of 2014. Investment - Yield € million Office investment Other investment Office prime yield 1,000 5.0% 800 4.5% 600 4.0% 400 3.5% 200 3.0% 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research Poor finish to 2014 but 2015 off to a flying start Hamburg Take-up in the Hamburg office market in 2014 totalled 513,000 m². This excellent result not only exceeded the 2013 figure by 17% but was also 7% higher than the ten-year average. As with Berlin, Hamburg was the only key German office location to significantly step up its performance yearon-year and even took third place at a national level in total take-up volumes. It was fuelled by an exceptional number of major deals upwards of 10,000 m², including a high owneroccupier proportion. The biggest contracts were concluded by the Telekom in Centre North (32,200 m²) and the VBG statutory accident insurance organisation in Barmbek (22,000 m²). Take-up - Employment 000 m2 Office take-up Employment growth (services)* 600 3% 400 2% 200 1% 0 0% BNP Paribas Real Estate Research Major deals see an increase in turnover 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Germany In the past twelve months, there has been hardly any change in office vacancy; it stood at 853,000 m² at the end of 2014. The volume of modern empty premises – the segment attracting the strongest demand –now accounts for only 24% of total vacancy, which represents a further relative fall. The vacancy rate in the market as a whole is 6.3%. The prime rent remained steady over the course of the year at €300/m²/year and is obtained for high-grade premises in very good parts of the City Centre. Although there have also been modest falls in rental prices in some office market zones, the overall trend is upwards in both top and average rents. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 350 9% 300 8% 250 7% 200 6% 150 5% BNP Paribas Real Estate Research Vacant space volumes remain unchanged 01 02 03 04 05 06 07 08 09 10 11 12 13 14 In 2014, the investment market registered a transaction volume of €3.8 billion and thus exceeded the very good 2013 total by 43%. The result was also 44% up on the ten-year average and almost reached the level achieved in 2006. A very lively end-of-year spurt generated more than €1.3 billion, the third-highest quarterly performance ever recorded. Several large deals upwards of €100 million together contributed almost one billion euros to total investment. The volume of investment produced just by single asset deals was by far the biggest ever with €3.3 billion. The buoyant demand, tough competition in the core segment combined with favourable financing conditions, saw the net prime yield for office buildings decline by 25 basis points over 2013 to stand at 4.40%. Investment - Yield € million Office investment Other investment Office prime yield 6,000 6.0% 5,000 5.5% 4,000 5.0% 3,000 4.5% 2,000 4.0% 1,000 3.5% BNP Paribas Real Estate Research Very high investment volume 01 02 03 04 05 06 07 08 09 10 11 12 13 14 21 Helsinki The Helsinki Metropolitan area is still facing challenges. Sluggish trends in the office market have been reflecting weak trends in service employment with little job creation in 2014. Large companies have been downsizing and subletting their premises. At the same time, companies have been looking for new premises with multi-activity office solutions generating more efficient space usage. The effects of this space efficiency have resulted in the release of vacant space. Net absorption - Employment 000 m2 Office net absorption Employment growth (services)* 180 3% 120 2% 60 1% 0 0% -1% -60 BNP Paribas Real Estate Research Occupiers in search for space efficiency 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Finland The combined effect of a slow economic cycle and the enduser preference to efficient space resulted in increased vacancy rates. Slow office demand impacted on rental growth even in the city centre. Although prime rents have been increasing moderately, the rate of growth has been slowing down during the past few years. The office market is oversupplied and approximately 100,000 m² of new offices is in the pipeline in the metropolitan area. This means that the volume of vacant space will not decrease without a significant economic recovery and office demand. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 400 16% 350 14% 300 12% 250 10% 200 8% 150 6% 100 4% 50 2% BNP Paribas Real Estate Research Helsinki metropolitan area is facing oversupply 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Until last year, investment demand in Finland was very selective and focused on prime locations in the city centre of Helsinki and on fully-rented new properties. There has been a limited supply of low-risk properties. As a result the focus has clearly started to spread out towards riskier properties including properties with some vacancy or with development opportunities. However, due to the weak economic environment with lay-offs and decreased sales volumes, the value increase is hindered by the negative development of net proceeds. As properties are both an investment tool and a resource for the user, reaching a sustainable value increase through cash flow requires a significant growth in the national economy. Finland - Investment - Yield € million Office investment Other investment Office prime yield 6,000 7% 5,000 6% 4,000 5% 3,000 4% 2,000 3% 1,000 2% 05 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research Shift toward uncertainty Istanbul Turkish economic activity has been gaining momentum after a weak second quarter, although the pick-up has not been strong enough to push GDP growth significantly above 3% in 2014. In 2015, the main drivers of growth will be the government’s infrastructure investment and public-private partnership (PPP) mega-projects, such as a third bridge over the Bosphorus, a third airport in Istanbul and the highway connecting Istanbul to Izmir. Net absorption figures in 2014 reached a new record high, exceeding 400,000 m². The market sectors most in demand by national and multinational occupiers in 2014 were Levent in CBD and Ataşehir on the Asian side. Net absorption - Employment 000 m2 Office net absorption Employment growth (services)* 700 7% 600 6% 500 5% 400 4% 300 3% 200 2% 100 1% 0 0% BNP Paribas Real Estate Research Record net absorption despite slower economic conditions 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Turkey A market dominated by national investors Despite economic slowdown, national investor demand dominated the office investment market in 2014. Gulf investors have been back since the end of elections but stay mostly focused on residential properties. Office investment volume jumped to $600 million (€480 million), an increase of 40% compared to 2013. The major transaction was recorded in the CBD, the Kristal Kule located on Buyukdere Avenue for a total of $303 million (€240 million). Prime office yields decreased to 6.75% in 2014. €/m2/year Office prime rent Office vacancy rate 400 40% 300 30% 200 20% 100 10% BNP Paribas Real Estate Research At the end of 2014, the total stock of grade A offices was standing at 4.6 million m2 in Istanbul, of which 1.9 million m2 was located in CBD. Supply was rather strong this year with 760,000 m² of new offices completed during 2014. While some of the floorspace was pre-let, a large amount was delivered on a speculative basis, pushing the vacancy rate to a 9-year high of 16%. In Levent, 140,000 m2 of new offices were added increasing the vacancy rate in this prime submarket to 11%. Developer activity continues strongly, 1.3 million m² new office stock is expected to add in the main business districts of Istanbul and total stock should reach 5.9 million m² at the end of 2017. Prime rent was $480/m²/year (€384) and average rent $280/m²/year (€224) in Istanbul grade A office market in 2014. Rents are anticipated to remain stable for prime locations in 2015. Prime rent - Vacancy rate 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Investment - Yield € million Office investment Other investment Office prime yield 1,200 8.0% 1,000 7.5% 800 7.0% 600 6.5% 400 6.0% 200 5.5% 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research Strong increase in supply pushed up the vacancy rate 14 23 Lille The take-up result remained well above the long-term average, despite an uncertain economic background. Nevertheless, the Lille office market slightly declined (-3%) in 2014 to 165,800 m². Each main district was negatively affected by the shortage of new supply, especially in Euralille (-70%). Small-sized transactions supported the market in 2014 representing more than 40% of the transacted volumes. Deals over 5,000 m² were exclusively owner-occupier operations, such as "la Cité des Métiers et de l’Artisanat" in Lille City Centre with 12,000 m², Boulanger with 9,000 m² in the South Periphery and Eiffinov in the district of Eurasanté with 8,300 m². Take-up - Employment 000 m2 Office take-up Employment growth (services)* 250 5% 200 4% 150 3% 100 2% 50 1% 0 0% BNP Paribas Real Estate Research Office take-up is in good condition 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for France After three years of growth, vacant space dropped by 7%. For second hand premises, supply decreased only by 3% and has remained high over the last 3 years. New premises supply saw a sharp fall with only 35,300 m² available (-69%), which represents barely more than 15% of the vacant stock, the lowest share in 10 years. Due to these tight market conditions, rents were maintained at their previous levels and the prime rent remained at €220/m²/year in Euralille. The situation is likely to change in 2016 onwards for the Lille metropolitan area, as a substantial amount of new office space will be delivered into the market. Prime rent - Vacant Space €/m2/year Office prime rent Office vacant space 000 m2 250 300 200 250 150 200 100 150 50 100 BNP Paribas Real Estate Research Vacancy reduction sees prime rent stay at a high level 01 02 03 04 05 06 07 08 09 10 11 12 13 14 After a fall in 2013 mainly due to the lack of assets for sale, the transaction volume in Lille increased in 2014 with €242 million invested. Offices accounted for 73% of this total. Several significant deals were recorded in 2014, such as the acquisition of Les Arcuriales building in Lille for €44 million and the Opéra Faidherbe building by AEW Europe for €17 million. Many investors are still looking at Lille. It remains a favourite location amongst regional cities along with Lyon thanks to the relative liquidity of the market. Given the stiff competition for "core" assets, the prime yield decreased to around 5.6% at the end of 2014. This contraction in yield will continue further in 2015. Investment - Yield € million Office investment Other investment Office prime yield 300 8.0% 250 7.5% 200 7.0% 150 6.5% 100 6.0% 50 5.5% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research Healthy figures for the investment market Lisbon A significant improvement in the economy has had positive impact on the office market in Lisbon. The employment rate rose from negative values to 2.6% during 2014. This boosted leasing activity and occupier motivation to relocate to newer and more efficient buildings. Office take-up increased by over 63% when compared to 2013, confirming the rise in confidence levels. This stimulated demand for offices over 800 m² and large transactions over 3,000 m². Overall, the annual number of office transactions grew from 186 to 239 in 2014. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 300 6% 200 4% 100 2% 0 0% -2% -100 BNP Paribas Real Estate Research Improved economic climate benefited the office market 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Portugal The vacancy rate diminished at the end of 2014, down to 12.1% compared to 13.2% last year. This was mainly caused by the reduction of new space available. This trend is expected to continue throughout 2015 and 2016 helped by the low volume of availability in new deliveries that have been already pre-let at 50% at least. Some office buildings have been converted into hotels or luxury houses in central areas and are therefore taken out of supply. The lack of office supply shifted rents up in the prime CBD. However, this trend was not seen in the other Lisbon office areas, where a general decrease in rents was recorded (with the exception of zone 3). Considering the pressing demand for new products and the lack of new supply, rents are expected to slightly increase in 2015. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 300 14% 250 12% 200 10% 150 8% BNP Paribas Real Estate Research Decrease in the vacancy rate 01 02 03 04 05 06 07 08 09 10 11 12 13 14 The performance of the Portuguese investment market has reinforced the climate of recovery that was felt in other segments. In 2014, commercial real estate investment in Lisbon reached €317 million, representing a 13% increase compared to the previous year. This mainly attributed to a rise in the retail sector. Office investment slightly decreased when compared to the peak observed in 2013, but it stood well above its 10-year average. The returning interest of international investors, the growing number of buyers, asset values and the improved market activity, generated a significant compression in yields in the last year. In this context, prime office yields recorded a contraction to 6.25%. Investment - Yield € million Office investment Other investment Office prime yield 400 9% 300 8% 200 7% 100 6% 05 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research The office investment market is healthy 14 25 Central London Central London office take-up totalled 1.49 million m², 24% up on 2013 and the highest level recorded since the height of the dot-com boom in 2000. Against the backdrop of continuing economic recovery, occupier sentiment strengthened significantly. Increases in employment and business investment helped facilitate the re-emergence of large occupiers agreeing pre-let deals well in advance of their move dates. The importance of TMT occupiers in Central London continued with 24% of overall take-up, whilst augmented by the revival of the finance sector that accounted for 18% of take-up. Finally, it is worth noting the growth of serviced office operators in the capital. The sector made up less than 1% of the market in 2010 & 2011 but surged to 7% of total take-up during 2014. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 1,600 4% 1,200 3% 800 2% 400 1% 0 0% -1% -400 BNP Paribas Real Estate Research Exceptional occupier demand sees take-up hit a high 2014 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for the UK Further yield compression as appetite for assets continues Downward pressure on government bond yields, a surging occupier market and a strong rental growth forecast has ensured Central London remains a key target for investors. Large trophy asset purchases by foreign buyers boosted Q4 2014 office investment to more than £8.5 billion (€10 billion), breaking the record set during the final quarter of 2013 and pushing the overall 2014 volume to £20 billion (€25.3 billion). Around 81% of Q4 office investment involved foreign buyers, bringing the annual total to 73%. Volumes within the City office market were particularly high at £8.2 billion (€10.4 billion). There were 24 deals of more than £100 million, 21 of these involved cross-border capital. The weight of money being deployed into the Central London office market has pushed the prime City office yield down to 4%, whilst the West End currently remains at 3.5%. €/m2/year Office prime rent Office vacancy rate 1,800 16% 1,600 14% 1,400 12% 1,200 10% 1,000 8% 800 6% BNP Paribas Real Estate Research A combination of exceptional growth in take-up and a constrained development pipeline resulted in a dramatic decline in the availability of office space across Central London markets. At 1.05 million m2 supply was 30% down on the previous year, producing one of the lowest vacancy rates on record at 5.1%. In particular the Midtown (4.8%), Southbank (3.6%) and West End (3.6%) markets are all experiencing an acute shortage of space with vacancy rates firmly below 5% and further drops expected during 2015. The Southbank office market has seen one of the largest drops in vacancy, with a 379bps movement in the final quarter alone. 2015 will see one of the lowest levels of development completions on record, further exacerbating supply issues and resulting in upwards pressure on rents as competition for the remaining space intensifies. Prime rent - Vacancy rate 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Investment - Yield € billion Office investment Other investment Office prime yield 35 6.0% 30 5.5% 25 5.0% 20 4.5% 15 4.0% 10 3.5% 5 3.0% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research “Supply Crunch” to push rents higher Luxembourg Office take-up in Luxembourg ended the year with a buoyant final quarter and recorded its highest level since 2008. During Q4 2014 some 78,900 m² were let or sold, bringing the annual result to 214,300 m², 43% up compared to 2013. Consultancy and financial services represented around two third of total take-up. In fact, the 2 largest transactions in 2014 were the occupancy by PWC of 27,000 m² into their new building – Crystal Park – in Gasperich and the move of KMPG into their new headquarter (17,000 m²) in Kirchberg. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 350 7% 300 6% 250 5% 200 4% 150 3% 100 2% 50 1% BNP Paribas Real Estate Research Robust take-up boosted by large deals 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Luxembourg Thanks to strong leasing activity and few speculative completions, the availability in the Luxembourg office market is back to its historic low level. Over the course of 2014, availability declined sharply to reach to 107,000 m² reflecting a vacancy rate of 3.2% vs 5.2% a year earlier. The decrease masks variable supply conditions across the different office markets and has not had any impact on rental values yet. Prime office space continues to be trade close to €480/m²/year in the CBD. Before seeing an upward movement on rents, decreases in commercial incentives granted by the owner will have to occur that will reduce the gap between headline and effective rental values. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 600 8% 500 6% 400 4% 300 2% BNP Paribas Real Estate Research A significant shrinkage of availability 01 02 03 04 05 06 07 08 09 10 11 12 13 14 On the investment side, 2014 was also a record year with an investment volume reaching €837 million - its highest result since 2007. The office segment remained by far the favoured asset segment for investors. The most notable transactions achieved were the acquisition of Galerie Kons (20,500 m²) by AXA for an investment volume close to €150 million and the sale of Le Dôme by Prameca to Blackstone for an estimated amount of €120 million. Following a first half year marked by downward movement, the prime yield for 3/6/9-year leases flattened by Q4 at 5.40%. For prime assets providing a secure long-term cash flow or small lot sizes, the prime yield stood well below 5%. Investment - Yield € million Office investment Other investment Office prime yield 2,800 7.0% 2,400 6.5% 2,000 6.0% 1,600 5.5% 1,200 5.0% 800 4.5% 400 4.0% BNP Paribas Real Estate Research The strongest investment volume since 2007 01 02 03 04 05 06 07 08 09 10 11 12 13 14 27 Lyon After a buoyant year 2013, office take-up in Lyon kept up the same pace in 2014 with 245,600 m² transacted (-4%), above its 5-year average. As with 2013 some major deals boosted the market, such as Caisse d’Epargne in the Incity tower for 17,600 m², the turnkey lease for Sanofi in Gerland for 15,500 m², and the owner-occupier deal of 10,600 m² for Seb in Ecully, North West. Furthermore, demand stayed buoyant in the medium and small size band, and the volume of transactions below 1,000 m² increased by 3%. It is worth noticing that for the first time, Gerland took the first position amongst office districts in Lyon (58,000 m²), ahead of the traditionally strong Part-Dieu (46,000 m²). This trend should continue in 2015 with major transactions in the pipeline in Gerland. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 300 6% 250 5% 200 4% 150 3% 100 2% 50 1% 0 0% BNP Paribas Real Estate Research A solid occupier market 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for France The office vacancy rate stood at 6.2% in 2014. This is an upswing following 3 years of decline and is due to a significant rise of both new and second-hand supply. On the one hand, new supply increased in central areas because of office completions. On the other hand, office space released into the market in the same districts fuelled the secondhand vacant stock. Average rents remained stable whereas the prime rent dropped back to more standard levels at €280/m²/year, after the historic peak recorded in 2013 in the Part-Dieu district. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 350 8% 300 7% 250 6% 200 5% 150 4% 100 3% BNP Paribas Real Estate Research Vacancy rate slightly up after 3 years of decline 01 02 03 04 05 06 07 08 09 10 11 12 13 14 With €856 million invested in commercial real estate in 2014, the investment market in Lyon was stable compared to 2013. Although offices were down 12% compared to the same period in 2013, amounting to €573 million, this is still high levels compared to the previous years. There have been 7 office deals over €25 million each since the beginning of the year. One of the most notable included the off-plan acquisition of the Incity tower by CERA in Lyon Part-Dieu. The scarcity of secured assets to sell in Lyon CBD already caused the prime yield to contract in 2014, which now stands at 5.3%. Since 2014, investors have been looking at new areas as Villeurbanne Carré de Soie or Gerland, where they can find more attractive initial yields of over 6% for new buildings. Investment - Yield € million Office investment Other investment Office prime yield 1,200 8.0% 1,000 7.5% 800 7.0% 600 6.5% 400 6.0% 200 5.5% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research The most active investment market amongst France’s regional cities Madrid In terms of take-up, the Madrid office market in 2014 showed a very similar picture to 2013, with 370,000 m² let. The number of deals grew by 17% year-on-year, demonstrating a more dynamic market although average volume per deal was lower. The city centre remained attractive to companies looking for office space as it has been since the beginning of the crisis. The central zone of Madrid cornered 56% of office transactions last year, a rise of 6 percentage points on 2013. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 10% 1,000 800 8% 600 6% 400 4% 200 2% 0 0% -2% -200 BNP Paribas Real Estate Research Stable take-up despite the scarcity of large-scale deals 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Spain The pressure generated by demand translated into an increase of 10% compared to 2013 for prime rents on the Castellana-Recoletos thoroughfare and 11% for average rents within the M-30 inner ring road. Prime rents reached €312/m2/year at the end of 2014, whereas average rents in the central zone stood at around €219/m2/year. Supply, however, is another matter. The vacancy rate climbed from 15.2% in 2013 to 16.2% in 2014. An increase of one percentage point was a consequence of the release of second-hand space over the past year, mainly through consolidation transactions. The rise occurred despite the scarce deliveries of new space. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 500 18% 450 15% 400 12% 350 9% 300 6% 250 3% BNP Paribas Real Estate Research Office rents in Madrid rising for the first time since 2008 01 02 03 04 05 06 07 08 09 10 11 12 13 14 With a total volume of €7 billion in 2014, Spain recorded its second-best real estate investment figures since the 2007 peak. In Madrid, the active acquisitions and capital markets are a consequence of an improvement in investor sentiment towards Spain. The investment volume in the capital city reached €3.6 billion in 2014, 278% up on 2013 and even exceeding the record volumes seen in 2007. Investor interest led to a strong compression of net prime yields. They decreased to 5% for offices compared to 6% at the end of 2013. Investment - Yield € million Office investment Other investment Office prime yield 4,800 6.5% 4,000 6.0% 3,200 5.5% 2,400 5.0% 1,600 4.5% 800 4.0% BNP Paribas Real Estate Research Record year for the investment market 01 02 03 04 05 06 07 08 09 10 11 12 13 14 29 Manchester Manchester’s take-up in 2014 for both city centre and out-of-town stood at circa 189,000 m², which was only 6% lower than the record take-up witnessed in 2001 and 2007. It represented an annual increase of 18% on 2013 and up 23% on the 5-year average of 153,300 m². Demand was spread across the city centre in developments such as in Spinningfields, Piccadilly and St Peters Square, and with growth in the take-up of all unit sizes. Professional services were the main driver for take-up and there was an increase of new entrants into the market. Amongst them, TLT Solicitors and Towergate Insurance in 3 Hardman Square whilst Trader Media Group and Ford Capital selected Manchester for their business expansion. The biggest transaction was Slater and Gordon’s move to 58 Mosley Street fora 9,958 m² unit. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 250 2.5% 200 2.0% 150 1.5% 100 1.0% 50 0.5% 0 0.0% -50 -0.5% -100 -1.0% BNP Paribas Real Estate Research An overall improvement in the occupational office market 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for the UK €/m2/year Office prime rent Office vacancy rate 450 18% 400 15% 350 12% 300 9% 250 6% 200 3% BNP Paribas Real Estate Research Driven by strong occupier activity and an absence of any significant completions over 2014, Grade A supply dwindled further. This led to an increase in the office prime rent, which stands now at £344/m²/year (€436) within the prime city centre core. Meanwhile a lot of the vacant space is obsolete and will be converted to other uses such as residential. For good quality second hand premises, headline rents can achieve circa £296/m²/year (€375). For all grades, incentive packages are starting to reduce as choices become more limited for occupiers. With the dearth of new supply, occupiers are increasingly left with no other option but to consider pre-let solutions and we expect to see rental growth during 2015. With improving economic fundamentals, there is the potential for speculative development to return to the market. Prime rent - Vacancy rate 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Manchester dominated the UK regional office investment market Investment - Yield Manchester saw a record level of transactional volume with £877 million (€1.1 billion) ploughed into the city’s offices in 2014. The weight of money targeting Manchester was underpinned by the combination of strong tenant demand and the lack of supply; investors are anticipating rental growth. Furthermore, Manchester was the strongest performing regional office market, accounting for 42% of the total office investment amongst the UK’s "Big 6" cities. Investors, particularly the UK institutions such as M&G Real Estate and NFU Mutual, were driven by the attractive yield spread to London. Manchester prime yields are now estimated to be in the region of 5% and reduced significantly through 2014 as pressure on pricing intensified. 3,000 7.0% 2,500 6.5% 2,000 6.0% 1,500 5.5% 1,000 5.0% 500 4.5% € million Office investment Other investment Office prime yield 01 02 03 04 05 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research Shortage of good quality supply Marseille In 2014, take-up in Marseille showed a substantial rebound and reached 126,400 m², which represented 20% growth. This progression was mainly sustained by occupier activity for new office premises that account for 48% of the total takeup. Pre-let transactions absorbed 23,820 m² of the 35,000 m² of the tower "La Marseillaise" located in the growing business district of Euroméditerranée, with 16,000 m² taken by the Greater Marseille Authority alone. Take-up for second hand premises remained subdued at 65,000 m². Marseille’s central business district - Euroméditerranée - was the most sought-after district of the city with more than 65% of the take-up for new offices, confirming its attractiveness to occupiers. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 200 4% 150 3% 100 2% 50 1% 0 0% BNP Paribas Real Estate Research New office space was the main source of demand 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for France Supply jumped by 12% due to growth in second-hand vacant space that represented 79% of the total available office space. Supply for new premises reduced by 12%, representing 54,700 m². Rental values rose particularly for new premises located in the central area of Marseille, where they now stand at €185/m²/year in average. The prime rent reached €265/m²/year in Euroméditerranée and most of the available new premises are actually located in Marseille centre. Availability of new office premises will be maintained by the important deliveries coming onto the market in 2016-2017. These future completions include "Le Virage" in Marseille South and the 3 buildings of "Astrolabe" in Euroméditerranée. Prime rent - Vacant Space €/m2/year Office prime rent Office vacant space 000 m2 300 300 250 250 200 200 150 150 100 100 BNP Paribas Real Estate Research Little rental growth in Marseille centre 01 02 03 04 05 06 07 08 09 10 11 12 13 14 2014 was an outstanding year for investment in commercial real estate in Marseille, with €548 million invested over 2014 (+208% on 2013). This is the second best year ever for investment after 2007. In terms of asset, investors mainly opted for offices as these are the most liquid assets, accounting for 57% of investment in Marseille. There were two significant deals over €50 million in 2014, including the off-plan acquisition by CDC and CEPAC of the new tower La Marseillaise for €180 million and the Europrogramme building by Primonial REIM for €51 million. In terms of yield, the trend was flat overall. Investment - Yield € million Office investment Other investment Office prime yield 1,000 8% 750 7% 500 6% 250 5% BNP Paribas Real Estate Research An outstanding year for investment 01 02 03 04 05 06 07 08 09 10 11 12 13 14 31 Milan Employment has been reducing over the last two years with Italy experiencing a third recession since the 2008 crisis. Take-up volume reduced in 2013 but bounced back in 2014 thanks to some large operations that resulted in companies moving into more modern premises. This improvement in occupier’ activity does not change the overall market trend. It remains a substitution market with companies trying to reduce their real estate costs. In the coming year, Italy will face a period of 3 lows; low GDP growth, low employment growth and low inflation. Thus the market’s driver will remain large deals; tenants will catch an opportunity to secure a new lease with lower rent. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 400 4% 300 3% 200 2% 100 1% 0 0% -1% -100 BNP Paribas Real Estate Research Rebound in take-up despite recession 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Italy Supply increased in all the different sub-markets, even in the CBD. Thus the prime rent declined during 2014, and now stands at €480/m²/year. A drop was also registered in average rents in the CBD and in the other market districts. Tenants continued to drive the market, securing deals with lower rents and good incentives. Incentives reached high levels but are not sufficient anymore to ensure lettings alone. We anticipate that growth in GDP and employment will be below 1% pa over the next two years, as such the Milan market will not record a significant decrease in supply that will allow rents to grow. Therefore they are likely to reduce again in 2015 and only stabilise in 2016. Prime rent - Vacancy rate Office prime rent €/m2/year Office vacancy rate 600 14% 550 12% 500 10% 450 8% 400 6% 350 4% BNP Paribas Real Estate Research Further rental reduction 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Commercial real estate investment volume fell by 9% from a very strong 2013 to €1.2 billion. Investment activity may improve in 2015 as buyers are looking actively at the Italian market. Specifically there is a strong interest again for investing in Milanese offices. The two main areas of interest are around Piazza Cordusio, the main square of the CBD, and between the two train stations of Porta Garibaldi and Centrale, the new CBD area. The increased activity in the market, particularly in the CBD and the Semi Central areas, triggered a decline in prime yields down by 35 basis points to 5.40%. This trend should continue for prime assets. However, the lack of products will push investors to look at value-added properties. Investment - Yield € million Office investment Other investment Office prime yield 4,000 6.5% 3,000 6.0% 2,000 5.5% 1,000 5.0% 04 05 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research A lack of good products Moscow The economic crisis that hit Russia in 2014 impacted strongly on the office market in Moscow. During the whole year, the market showed negative dynamics in all key indicators. First, plans to increase the number of staff were deferred and subsequently followed by job cuts in many companies. This led to a lack of demand for new office space, and consequently contributed to the increase in the vacancy rate and downward pressure on rents. The volume of net absorption, reflecting demand for office space, significantly decreased this year. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 2,500 5% 2,000 4% 1,500 3% 1,000 2% 500 1% BNP Paribas Real Estate Research Key indicators are all turning negative 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Russia By the end of the year, 17% of the existing office space remained unoccupied. This has been the highest level of vacancy in Moscow since 2010. The office market is traditionally a vulnerable sector during macroeconomic instability. One of the major trends that affected the market in 2014 is the transfer of commercial real estate pricing from dollars into rubles. The transition of many owners to ruble rental values has been mainly evident in grade B+ offices. Against the background of increasing supply, owners have had to be flexible and make further concessions to tenants, adjusting rents and providing various types of incentives. Prime rent - Vacancy rate Office prime rent €/m2/year Office vacancy rate 1,000 25% 800 20% 600 15% 400 10% 200 5% BNP Paribas Real Estate Research Vacancy rate on the rise 01 02 03 04 05 06 07 08 09 10 11 12 13 14 The volume of investment in 2014 amounted to €3.125 billion, a 60% decrease compared with 2013. Most funds were invested in office, 40% of total real estate investment. Yields are subject to upwards pressure and will increase in 2015. Investment - Yield € million Office investment Other investment Office prime yield 7,500 13% 6,000 12% 4,500 11% 3,000 10% 1,500 9% 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research Investment dropped by more than 60% in 2014 14 33 Munich Totalling 597,000 m², office take-up in Munich finished 2014 on a par with the 2013 figure (603,000 m²) but more than 12% down on the ten-year average. A contrast is that the owneroccupier proportion was greatly reduced whereas the year before this factor had contributed over 90,000 m². Therefore the actual volume of lettings, excluding owner-occupier deals, increased quite appreciably in 2014. For once, Munich, a regular winner, failed to head the national ranking and was relegated to second place by Berlin. The biggest deals included those concluded by Brainlab (21,300 m²), BayWa AG (20,000 m²) and Panasonic Automotive (12,200 m²). Take-up - Employment 000 m2 Office take-up Employment growth (services)* 1,000 2.5% 800 2.0% 600 1.5% 400 1.0% 200 0.5% 0 0.0% BNP Paribas Real Estate Research Take-up remained stable 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Germany As expected, the reduction in vacancy has slowed down. Amounting to 1.27 million m², vacant office space was 2% lower than at the end of 2013 and in the final quarter, the volume actually increased slightly. Modern unoccupied premises now total 337,000 m², corresponding to 27% of aggregate vacancy, still at low levels by national standards. In the market as a whole the vacancy rate is 6.2%. In some parts of the favoured downtown precincts there is a shortage of high-grade modern premises, and in 2014 this led to a rise of 3% in the prime rent to €414/m². As before, this is achieved in the City Centre. Rents have also climbed in several other office market zones. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 450 11% 400 9% 350 7% 300 5% 250 3% BNP Paribas Real Estate Research Decline in vacancy is slowing 01 02 03 04 05 06 07 08 09 10 11 12 13 14 With aggregate turnover of close to €5.4 billion, the Munich investment market outpaced the already very good 2013 figure by 13% and achieved the second-largest investment volume ever recorded. Only the boom year of 2007 saw a higher result. The ten-year average was actually exceeded by well over 50%. This outstanding performance was fuelled both by a very large number of single asset deals and also by a whole series of substantial transactions in the triple-digit million range – 14 altogether. In the past twelve months, the buoyant scale of demand, especially for high-grade core assets, the competition among investors and the historically low 10-year Bund led to a further compression in the office prime yield to 4.25%. Investment - Yield € million Office investment Other investment Office prime yield 8,000 6.0% 6,000 5.5% 4,000 5.0% 2,000 4.5% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research Historic low prime yields Oslo Growth in employment services remained stable and the unemployment rate was still extremely low (3.5%). In 2014, GDP grew by 1.8% and is anticipated to increase by 2.3% in 2015. The upside growth potential will probably be hindered by falling oil prices and reduced exports. In this context, take-up decreased slightly and occupiers have been more cautious in a number of criteria when renting including quality of the building, location and rationalisation of space before moving to another building. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 200 4% 150 3% 100 2% 50 1% 0 0% -1% -50 BNP Paribas Real Estate Research Slight decrease in demand as occupiers show caution 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Norway €/m2/year Office prime rent 9% 600 8% 500 7% 400 6% 300 5% 200 4% 100 3% 10 Real estate yields continued to decline over the year Since 2009 there has been a steady increase in investments in the Norwegian office market. Likewise there has been a steady decline in the office net prime yield, going as far back as 2008. 2014 ended with a prime yield of 4.75%, down from 5.00%. Low interest rates and a volatile stock market make real estate a relatively more attractive asset class, offering a higher return relative to risk. This has, and is likely continue, to put downward pressure on the prime yield. Office vacancy rate 700 11 12 13 BNP Paribas Real Estate Research Rent levels in Oslo continued their growth reflecting a strong demand for top quality premises and limited supply for such products. The office vacancy rate stabilised at 8.1% by the end of 2014 and vacant office space accounted for 800,000 m2 in Greater Oslo. A further 120,000 m² of deliveries is expected for 2015. Vacancy varies greatly when segmented by submarket, with central areas and inner city low and relatively stable. Prime rent - Vacancy rate 14 Norway - Investment - Yield € million Office investment Other investment Office prime yield 10,000 7.0% 8,000 6.5% 6,000 6.0% 4,000 5.5% 2,000 5.0% 04 05 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research Rental growth reflects limited supply of prime products 14 35 Central Paris Employment growth in France remained stable in 2014 (+0.1%). However, employment in Île-de-France, driven by the service sector, proved resilient compared to the rest of France with 10,000 jobs estimated to have been created in 2014. As a consequence, take-up in the Central Paris office market climbed by 13% over 2013 to 1.8 million m². Large units were the most robust performers. As such, deals over 5,000 m² bounced back by 31% in 2014 versus 2013. Small and medium-sized units remained a solid base for the market, showing a 4% increase. The traditional business districts (Paris inner city, Neuilly-Levallois and La Défense especially) performed most strongly over 2014. Conversely, the other districts of the Western Crescent and the Inner Rim failed to reach their ten-year average. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 2,500 5% 2,000 4% 1,500 3% 1,000 2% 500 1% 0 0% BNP Paribas Real Estate Research Sharp upturn in take-up over 2014 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for France The vacancy rate now stands at 8.3%, compared to just 8.2% at the end of 2013. It remains the highest in the districts of the Western Crescent (16% in Péri-Défense) and the lowest in Paris Inner City (5%). Immediate supply stood above 2.85 million m² as of December 2014, including only 21% of new offices. The vacancy rate should start to decrease at the end of 2015, due to the low level of completions in the recent months. The high availability is holding back rental growth as tenants have a large choice of quality premises. Prime rents, which dwindled from €830/m²/year in 2012 to €750/m²/year in 2013, remained stable in 2014. Likewise, incentives increased from 18% to 20% in 2014. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 900 10% 800 8% 700 6% 600 4% BNP Paribas Real Estate Research The prime rent and the vacancy rate remained stable 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Amounting to €16.8 billion, the investment volume in Central Paris in 2014 increased outstandingly, up 35% compared to 2013. Offices attracted 78% of investment, with 12 deals for over €200 million recorded in 2014, including the acquisition by a Saudi family office of the Risanamento portfolio in Paris CBD for about €1.2 billion. Given a massive flow of "new cash" and the low level of the lending rate, the prime yield continued to decrease to stand at around 4% at the end of 2014. The high levels of risk premium and the strong demand for "core" assets will push prime yields further down. For these reasons, a new yield compression - of up to 25 basis points - can be foreseen in Paris CBD in 2015. Investment - Yield € billion Office investment Other investment Office prime yield 20 7% 15 6% 10 5% 5 4% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research Outstanding performance for the investment market Prague Prague’s letting activity was dominated by new lease deals. Nearly 189,000 m² of offices were taken up in 2014 with new deals accounting for almost 61% of all lease transactions. The last quarter was particularly active generating 77,000 m² of new leases. Net leasing activity in 2014 reached the secondhighest level of the past 6 years; only 2011 ranked higher with a figure exceeding 200,000 m². Take-up - Employment 000 m2 Office take-up Employment growth (services)* 300 4% 225 3% 150 2% 75 1% 0 0% -1% -75 BNP Paribas Real Estate Research Significant net take-up level recorded in Prague 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for the Czech Republic Supply coming onto the market continued to drive the vacancy rate upwards in the last quarter of 2014 where it reached 15.4%. Even higher office vacancy can be expected in 2015. Prime rents continued to decrease further in the CBD of Prague to €19.50/m²/month in 2014. Prime rents in the rest of Prague stagnated and ranged from €15.00 – 17.50/m²/month in Inner City and €13.00 – 14.50/m²/month in Outer City. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 300 16% 275 14% 250 12% 225 10% 200 8% 175 6% BNP Paribas Real Estate Research Excess supply is seeing the vacancy rate rise 01 02 03 04 05 06 07 08 09 10 11 12 13 14 In the past three years the trend for investment activity has moved upwards with almost €2 billion transacted just during 2014. The Czech Republic experienced a 53% increase in investment volume compared to the €1.3 billion registered in the previous year and also saw the third strongest investment performance ever recorded. The industrial market was the most active sector in 2014 followed by the office and retail segments. The market was particularly boosted by one of the largest single logistics deal recorded in Europe during the year: VGP and its jointventure partner Tristan Capital Partners sold a portfolio of prime logistics assets in the Czech Republic to Prague-based PointPark Properties (P3) for €523 million. Investment - Yield € million Office investment Other investment Office prime yield 2,500 10% 2,000 9% 1,500 8% 1,000 7% 500 6% BNP Paribas Real Estate Research Strong investment activity boosted by one major logistics deal 01 02 03 04 05 06 07 08 09 10 11 12 13 14 37 Riga Total office absorption during 2014 reached more than 39,000 m², which is three times higher than it was in 2013. Absorption was boosted by the relocation of the State Revenue office HQ into 41,000 m² at Talejas street 1. The office market was mainly driven by comparatively large relocations of existing players, and by the entrance of several newcomers establishing shared service centres and back offices functions. These include the American corporation Cabot, SSC Allnex and the aviation company Primera Air. During 2014, IT companies as well as SSC/BSC (shared & business service centres) were the most active players in the Riga office market, accounting for 50% of total take-up. Net absorption - Employment 000 m2 Office net absorption Employment growth (services)* 100 10% 50 5% 0 0% -50 -5% -100 -10% BNP Paribas Real Estate Research Office market pushed up by major deals 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics - Data for Latvia €/m2/year Office prime rent 30% 250 25% 200 20% 150 15% 100 10% 50 5% 03 Foreign investors actively looking for city centre buildings With a transaction volume of €130 million the Riga investment market achieved good results again, exceeding the long-term average figure. As expected though, the total was lower by 25% than the previous year due to geopolitical uncertainty, global economic slowdown and cautiousness among investors. Office investment accounted for more than 30% of the total real estate investment volume. The most active investors in 2014 came originally from Sweden, Estonia and Norway such as Nordic and Baltic Property Group (NBP), EfTEN Capital, New Agenda Partners. EfTEN Capital has been active by investing more than €37.6 million in the office and industrial segments during 2014. Investors have been looking for well-located office buildings, especially in the city centre. This activity led the net office prime yield in Riga to decrease to 7.25%. Office vacancy rate 300 04 05 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research Moderate growth in prime rents continued in Riga during 2014 due to shortage of new developments and low vacancy in prime locations. Prime office rents in the CBD rose by 10.5% on average whilst rents for other modern offices remained stable throughout the year. At the end of 2014, the office vacancy rate stood at 8.5%. It increased slightly over 2013 due to second-hand supply released into the market. Whilst the vacancy rate for grade A offices was still at 3.7%, it rose by 1.1% for grade B office space to 9.4%. Given the insufficient new supply during the next two years, it is expected that vacancy rates will decrease slightly. Prime rent - Vacancy rate 14 Investment - Yield € million Office investment Other investment Office prime yield 400 13% 300 11% 200 9% 100 7% 05 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research Second-hand supply led to increased office vacancy rate Rome Take-up activity in Rome was low in 2014 with few deals recorded. The largest one was the 27,000 m² transaction initiated by Wind in the new development Europarco in the Greater Eur district. The Europarco has attracted important companies such as P&G, Cofely, Wind, Atac and Provincia di Roma in new offices, close to the Core Eur district. The occupier market in Rome is facing three main problems. Firstly, the difficult economic situation does not encourage companies to move but rather to renegotiate their leases. Secondly, the public sector, the main driver of the market, is less active than in the past. Finally, the abundant low quality vacant space and the shortage of well-located new supply restrain occupiers in their plan to move. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 300 4% 225 3% 150 2% 75 1% 0 0% -1% -75 BNP Paribas Real Estate Research Take-up activity is still reducing 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Italy The volume of supply in Rome continued to increase as the recession led companies to release space. In this context, new office developments do not start before securing a tenant. The result is that the office stock in the capital is dated, in some cases obsolete and not renewed, whereas the few developments that exist have difficulties being absorbed by the market. The office supply increase and demand reduction continued to put rents under pressure. Some tenants try to renegotiate their lease contract to obtain a rental reduction. This is the case also for new leases since the market is driven by companies that want to reduce their real estate cost. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 550 9% 500 8% 450 7% 400 6% 350 5% BNP Paribas Real Estate Research Abundant vacancy puts rents under pressure 01 02 03 04 05 06 07 08 09 10 11 12 13 14 The Roman investment market did not follow the same trend of increase seen in the Italian market since volumes in the city remained low. It amounted to €717 million in 2014, of which €585 million just in the fourth quarter. The deals closed are quite significant in terms of size and product: GIC bought the remaining part of Roma Est shopping centre and the Qatar Investment Authority bought two other hotels including the St Regis. Concerning American investors, the main one was Colony Capitals who purchased 14 "villini" from Unicredit. This last transaction is a good example of what the city lacks; a value-added operation on trophy assets. The few office transactions recorded led to a reduction in prime yields, the first in years. Likewise in most cities in Western Europe, this trend will carry on in 2015 for prime products. Investment - Yield € million Office investment Other investment Office prime yield 2,500 6.5% 2,000 6.0% 1,500 5.5% 1,000 5.0% 500 4.5% 04 05 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research Low investment volume 14 39 Saint Petersburg Despite the economic crisis, overall demand for office space in 2014 remained stable, especially for grade B properties. Unsurprisingly Grade A offices in current conditions are less in demand because economic conditions have changed. Companies are now more cautious, renting less space than they had initially planned and opting for the most cost effective units. At the beginning of the year the most popular premises ranged from 200 to 500 m². At the end of 2014, demand shifted towards offices of 100 to 200 m². They also moved into offices with lower rents, or sublet part of their premises to offset costs. Companies are not choosing to move to locations that are perceived as showing excessive rents. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 500 5% 400 4% 300 3% 200 2% 100 1% 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research Office space is being optimized 14 *Oxford Economics / BNP Paribas - Data for Russia During 2014 the office market became tenant friendly, a result of increased vacancy rates and weaker activity. This forced owners to be more pliant in determining rents and in 2015 this trend is expected to continue. There are few expectations of rental growth and because of financial difficulties, future rents will be established in Russian ruble only. New office centres, which are planned to open in 2015, will be faced with occupancy issues and it will be difficult to find the same volume of tenants as in 2014. Taking into consideration the current political and economic situation and complicated access to financing, new projects are not expected to appear in 2015. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 800 25% 600 20% 400 15% 200 10% BNP Paribas Real Estate Research Tenants are determining lease conditions 01 02 03 04 05 06 07 08 09 10 11 12 13 14 A predictable rise in yields and a reduction of investment volume appeared in 2014. The volume of real estate investment dropped to less than €280 million and office prime yields increased to 11.0% in 2014. This is believed to be only a beginning; this process is expected to continue in 2015. Investment - Yield € million Office investment Other investment Office prime yield 2,000 15% 1,600 12% 1,200 9% 800 6% 400 3% 08 09 10 11 12 13 14 BNP Paribas Real Estate Research First signs of investment decline Stockholm Employment in Stockholm is continuing to show a stable rate of increase. Stockholm’s labour market is strongly serviceoriented and accounts for almost one-third of employment. It is the employment growth within the service sector in Stockholm that, more than anything, stimulates demand for high-quality office premises in good locations. This sector as well as private consumption will both continue to be important growth engines in the coming years. Key variables like cost per employee are becoming more decisive, resulting in even more efficient use of office premises and the regrouping strategies of many larger companies. A high proportion of pre-lets show a steady demand for office premises whereas inefficient offices are being converted for other use. Net absorption - Employment 000 m2 Office net absorption Employment growth (services)* 450 3% 300 2% 150 1% 0 0% -1% -150 BNP Paribas Real Estate Research Steady demand for high quality offices 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Sweden Office investment more than doubled in 2014 Factors such as the low interest-rate level, the lack of highyielding alternatives and good access to financing resulted in a transaction volume approaching previous record years. Stockholm dominated geographically but only two of the ten largest transactions actually took place in the Stockholm area; few of the largest transactions occurred in the CBD. Offices continue to be the dominant investment category and yields have fallen in prime locations in the inner city and suburbs. Private and listed property companies were the largest investors. Private property companies were also active on the selling side, thanks to a refinement in property portfolios during the past year. Foreign investors accounted for several of the year’s largest transactions; however the total proportion of domestic buyers remained high. €/m2/year Office prime rent Office vacancy rate 600 13% 550 12% 500 11% 450 10% 400 9% 350 8% BNP Paribas Real Estate Research The rental growth gathered speed in 2014 and the market rent for newly renovated and space-efficient properties in Stockholm CBD now stands at €502/m² (SEK4,650). Rents are expected to continue to rise during 2015 and 2016. High demand for new and modernised premises will keep upward pressure on rents. This is the result of the low supply of office space in the CBD that will continue for the next few years despite new developments and refurbishments. The shortage of available office space together with a strong and office-dependent service sector have resulted in a low vacancy rate of about 4% in the CBD. Following the completion of several CBD projects and the movement of several larger companies to office areas outside the Inner city, the vacancy rate is expected to reach 4.5% in 2015 and 5.5% in 2016. Prime rent - Vacancy rate 02 03 04 05 06 07 08 09 10 11 12 13 14 Investment - Yield € million Office investment Other investment Office prime yield 10,000 6.0% 8,000 5.5% 6,000 5.0% 4,000 4.5% 2,000 4.0% 07 08 09 10 11 12 13 BNP Paribas Real Estate Research Low vacancy rate in the CBD pushes rents up 14 41 Tallinn Many new projects were started during 2014 but actual deliveries accounted for only around 19,000 m². Supply is expected to increase as several large-scale projects will be delivered in 2016-2017. Net absorption has moved in accordance with the volume of office completions. Estonian labour market indicators have been positive, especially compared to other countries of the Eurozone. Services employment has been growing since 2011 and unemployment rate has halved over the past five years to stand at 7.5% in 2014. Nevertheless structural unemployment still exists in some economic sectors and a lack of available labour force in other industries. Net absorption - Employment 000 m2 Office net absorption Employment growth (services)* 90 7.5% 60 5.0% 30 2.5% 0 0.0% -2.5% -30 BNP Paribas Real Estate Research Supply boost to come from increased development activity 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics - Data for Estonia In 2014 the vacancy rate remained the same as the previous year: below 4% for grade A offices and 6% for grade B, with slight decrease in grade A. Such segmentation is derived from market demand. Despite moderate optimism with the economy and uncertainty caused by geopolitical reasons, tenants realize that the total expenses of new quality premises will be lower compared to amortize grade B spaces. Prime rents will keep moving up until the completion of new offices in the next few years that will help bring stabilisation. It will also create stronger negotiation power for tenants. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 220 20% 200 16% 180 12% 160 8% 140 4% BNP Paribas Real Estate Research Increases in the prime rent are likely to slow 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Total investment in Tallinn remained stable to €85 million in 2014 compared to 2013, whilst it decreased by 24% in overall Estonia to €106 million. This decline was caused by uncertainty in the market as well as a shortage of highgrade investment projects. Local investors have been the main players, taking advantage of strong knowledge of the local market. The industrial/logistics and retail segments were the most active market segments, and yields in these segments have compressed. In 2015, little increase in real estate investment is expected and focus will remain on properties with re-development potential. Despite the overall decrease in investment volume, office investment rose in 2014 and yields declined. Investment - Yield € million Office investment Other investment Office prime yield 250 12% 200 10% 150 8% 100 6% 50 4% 04 05 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research Steady investment activity driven by local buyers Vienna Office take-up in Vienna declined in 2014 to 250,000 m². This represented a drop of 17% in comparison to 2013 and reflecting a slow start to the year before take-up gained momentum in the second half of 2014. The highest transaction volumes were recorded in the CBD and the Central Station area, followed by Wienerberg. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 600 3.0% 500 2.5% 400 2.0% 300 1.5% 200 1.0% 100 0.5% BNP Paribas Real Estate Research Slow momentum leaves take-up down 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Austria The prime rent slightly increased in 2014 to €309/m²/year, reflecting the shortage of supply for prime premises, while the average rent in the CBD remained constant at around €216/m²/year. Globally, rents have slightly risen for secondhand offices located in quality locations. However, older office buildings or properties located in peripheral areas with poor transport connections have been receiving less demand, thus still recording falling rents. On the supply side, the limited development activity has kept the vacancy rate at around 6.6% in 2014. Current projects in the pipeline for 2015 are already pre-let or owner occupied, thus the overall vacancy rate is expected to remain stable over the year. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 350 8% 300 7% 250 6% 200 5% 150 4% BNP Paribas Real Estate Research Scarcity of high quality supply pushed prime rents up 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Commercial real estate investment volumes in Austria nearly reached the pre-crisis record level. In Vienna the market volume nearly doubled compared to 2013 and reached €2 billion. Office remained the most favoured assets representing a 70% share of the total investment volume. Investors have focused on prime assets with good location, long-term leases and good tenants. However, decreasing supply of such buildings due to continuous decline in new deliveries is maintaining fierce competition and high prices. As a consequence, investors showed increased interest in properties with uplift potential. At the end of 2014 the prime yield in Vienna slightly declined by 20 bp compared to Q4 2013 and reached an historic low of 4.70%. Investment - Yield € million Office investment Other investment Office prime yield 3,000 6.00% 2,500 5.75% 2,000 5.50% 1,500 5.25% 1,000 5.00% 500 4.75% BNP Paribas Real Estate Research Investment volume back to pre-crisis levels 01 02 03 04 05 06 07 08 09 10 11 12 13 14 43 Vilnius At the end of 2014 the stock of modern offices in Vilnius rose by 5.2% to reach 405,000 m². It is expected that during 2015–2017 the Vilnius office market will increase by 150,000 m² of modern office space. Developers no longer focus on prime premises only. Indeed, half of the planned office developments will be accounted for by grade B offices located outside the CBD. High office demand in 2014 led to positive market absorption largely exceeding the volume of new supply available. The largest lease transactions recorded in 2014 were made by shared service centres and IT companies that occupy over 20% of all office stock in Vilnius. The trend for pre-lets is occurring again in Vilnius and agreements have often been signed 6 to 9 months in advance. It is expected that market absorption will follow the supply trend in 2015. Net absorption - Employment 000 m2 Office net absorption Employment growth (services)* 100 10% 80 8% 60 6% 40 4% 20 2% 0 0 -20 -2% BNP Paribas Real Estate Research Strong net absorption from high demand 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics - Data for Lithuania Vacant space of modern office buildings, especially in the CBD of Vilnius, was very low at the end of 2014. The vacancy rate for prime offices even fell below 0.5% at the end of 2014 with no major completions in this segment for grade A properties. High demand for quality premises in grade B offices forced supply in this segment to decline as well; the vacancy rate dropped quickly from 8.5% in Q1 to 3.3% in Q4. Record low supply turned the Vilnius office market into a landlords’ market, where asking rents could be easily increased. However this trend cannot last for long as new buildings are coming to the market, especially in the prime segment, and the old ones will be forced to face competition. Prime rent - Vacancy rate €/m2/year Office prime rent Office vacancy rate 250 20% 200 16% 150 12% 100 8% 50 4% BNP Paribas Real Estate Research Vacancy rates hit bottom 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Real estate investment in Vilnius reached €178 million in 2014 and was the highest among Baltic capitals. Office investment was the most active segment and covered 72% of all investment. Local, Nordic and Russian investors were again the key players in the Baltic market in 2014. International investors who were previously reluctant to enter the Baltic region are currently investigating possibilities to include the region in their investment strategies. Although yields have decreased significantly in recent years, there is still an attractive gap compared to Western European levels. Average yields for prime office assets are around 7.00% and the most attractive properties could stand 50 basis points lower. Lithuania followed the path of Estonia and Latvia in transferring currency risk to the Euro when it joined the Eurozone on 1st January 2015. Investment - Yield € million Office investment Other investment Office prime yield 200 12% 160 10% 120 8% 80 6% 40 4% 04 05 06 07 08 09 10 11 12 13 14 BNP Paribas Real Estate Research Record investment volumes boosted by offices Warsaw Net take-up in 2014 amounted to around 400,000 m², representing a 10% decline compared with the corresponding period last year although still above the long-term average. Renegotiations accounted for an additional 170,000 m². Considering the positive forecast for the Polish economy and the vibrant business environment in Warsaw, the volume of net take-up is expected to remain relatively stable over the course of 2015-2016. Due to a large amount of office vacant space currently available on the market, occupiers will continue to have a strong negotiation position. Indeed, with nearly 290,000 m² completed in 2014, the total stock in Warsaw crept above 4.4 million m². A total of 550,000 m² is currently under construction, of which approximately 60% will be delivered by the end of 2015. Take-up - Employment 000 m2 Office take-up Employment growth (services)* 500 10% 400 8% 300 6% 200 4% 100 2% 0 0% -2% -100 BNP Paribas Real Estate Research A market dominated by high level of deliveries 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Poland €/m2/year With a total volume of €1.1 billion spent on Warsaw offices in 2014, the market share of the capital city accounted for 34% of the overall investment market in Poland. It represents a 60% y-o-y increase, boosted with large deals such as the sale of "Rondo 1" for €295 million or "Plac Unii" for €226 million. The pressure from reducing demand and the potential hike in the vacancy rate is exerting a negative impact on rents, both headline and effective. Consequently the office prime yield is also moving up, growing by 0.25 bps over the last six months to stand currently at 6.15%. Office vacancy rate 20% 350 15% 300 10% 250 5% 03 Weaker demand plus development pushes yields up Office prime rent 400 04 05 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research At the end 2014 over 607,000 m² of office space remained available, representing a vacancy rate of 13.7%. Compared with the same period last year it rose by 2 percentage point. Central locations recorded a higher vacancy rate with 15.5%, while in non-central areas it was closer to 13%. This rise would have been stronger if a large part of completions scheduled for delivery was not postponed. The upward trend in vacancy is likely to continue over the next 18-24 months and the vacancy rate could climb to more than 16% in 2015. The bulk of vacant space is concentrated in buildings more than 15 years old. However, prime and well-managed schemes within key submarkets should remain relatively resistant to negative market trends. Prime rent - Vacancy rate 14 Investment - Yield € million Office investment Other investment Office prime yield 3,000 10% 2,500 9% 2,000 8% 1,500 7% 1,000 6% 500 5% 03 04 05 06 07 08 09 10 11 12 13 BNP Paribas Real Estate Research Completions see the vacancy rate increase 14 45 Zurich Total office stock has been growing constantly in Zurich with low vacancy rates. Throughout 2014, large companies reorganized their back offices and moved into new and refurbished buildings. These movements contributed to an increase in vacant space in downtown Zurich as demand was not able to absorb the ongoing growth in office stock. Compared to other major cities, Zurich is still a stable market. However, not all offices under construction or under refurbishment have been pre-let. Take-up - Employment 000 m2 Office net absorption** Employment growth (services)* 200 4% 150 3% 100 2% 50 1% BNP Paribas Real Estate Research Increasing vacant space in downtown Zurich 01 02 03 04 05 06 07 08 09 10 11 12 13 14 *Oxford Economics / BNP Paribas - Data for Switzerland - **estimation for 2014 The vacancy rate is likely to grow further in the next few months as supply exceeds demand. Indeed, offices currently undergoing refurbishment will enter into the calculation of the vacancy rate when delivered. Prime rents in the city of Zurich have been declining over the past three years reflecting the increasing volume of vacant space. The market has become a tenant’s market and landlords have been willing to grant incentives by staggering rents or by offering cost-sharing for major roll-outs rather than lowering headline rents. Prime rent - Vacancy rate €/m2/year Office prime rent 4% 900 3% 800 2% 700 1% 07 Prime yields for core assets have declined due to growing demand by institutional real estate owners seeking return in a situation of decreasing yields on government bonds. As real estate is still considered to be an excellent safe haven and adequate alternatives are still missing, prices for core assets are still increasing. Fully let commercial properties in prime locations are in high demand. Low net prime yields are specific to these buildings. As long as mortgage rates stay at an all-time low, real estate investment will remain attractive. As the central bank of Switzerland has imposed negative interest rates on bank deposits, it is likely that mortgage rates will remain at low levels in the near future. 08 09 10 11 12 13 14 Yield Office prime yield 5.0% 4.5% 4.0% BNP Paribas Real Estate Research Real estate assets remain attractive Office vacancy rate 1,000 BNP Paribas Real Estate Research A tenant’s market is pushing rents down 3.5% 3.0% 07 08 09 10 11 12 13 14 47 Glossary BNP Paribas Real Estate is working on producing indicators which are as comparable as possible. This is a complex issue, due to cultural differences from market to market. Nevertheless, as we aim to actively contribute to the transparency of the markets, we have highlighted those definitions and indicators which are strictly comparable, so that our readers can understand what the indicators mean. Furthermore we have decided to adopt the PEPCIG1 definitions, on which most of the following indicators published by BNP Paribas Real Estate are based. Other indicators are from INREV2 and from BNP Paribas Real Estate . Central Business District average rent is the average of each of the last four quarters’ average headline rent in the CBD. Each quarterly average rent is weighted by the surface of each lease signed during the quarter, in either new or second-hand premises. The definition of CBD corresponds to local conventions. Completions represent the total amount of floor space that has reached practical completion and is occupied, ready for occupation or an occupancy permit where required has been issued during the survey period. Central London includes the following districts: West End, Midtown, City, Docklands, Southbank, Western Fringe and Northern Fringe. Central Paris includes the following districts: CBD, Paris out of CBD, La Défense, Western Crescent and Inner Rim. Core Investment Vehicles target returns at 11.5% and lower, with gearing level up to 60% of Gross Asset Value. Closed Ended Fund is a vehicle that has a targeted range of investor capital and a finite life. Development Pipeline represents the total amount of floor space for all developments under construction and/or schemes (including major refurbishments) that have the potential to be built in the future through having a secured level of planning permission but remain unimplemented at the survey date. It includes all proposed new buildings, those constructed behind retained facades and buildings (or parts of buildings) undergoing a change of use to offices. German Open Ended Fund is a public vehicle that does not have a finite life, continually accepts new investor capital and makes new property investments. The list of German Open Ended Funds is published by the BVI (Bundesverband Investment und Asset Management e.V.). Opportunistic Investment Vehicles target returns in excess of 17%, with gearing levels above 60% of Gross Asset Value. Actual transactions are used in France, Germany and Belgium to support the headline prime rental quoted, but one-off deals, which do not represent the market, are disregarded. In the UK & Spain, if there are no prime transactions during the survey period a hypothetical rent is quoted, based on expert opinion of market conditions. Space calculation differs in Spain, where figures in m² (Take-Up, Vacancy, Pipeline, Completions) as well as Rental values are based on Gross Letting Area space, contrary to the other main European markets, which use Net Letting Area. In order to make the Spanish figures comparable across all monitored markets, they should be multiplied by 0.82 (NLA = 0.82 GLA). This ratio is applied by BNP Paribas Real Estate to produce international indices and benchmarks. Take-Up represents the total floor space known to have been let or pre-let, sold or pre-sold to tenants or owner-occupiers during the survey period. It does not include space that is under offer - A property is deemed to be “taken-up” only when contracts are signed or a binding agreement exists - Pre-let refers to take-up that was either in the planning or construction stage - All deals (including pre-lets) are recorded in the period in which they are signed - Contract renewals are not included - Sales and leasebacks are not included as there had been no change in occupation - Quoted take-up volumes are not definitive and are consequently subject to change. The breakdown of take-up by business sector is compatible with the European NACE code. Under Construction represents the total amount of floor space in properties where construction has commenced (on a new development or a major refurbishment) at the survey date. It includes properties for owner occupation, which are reported separately. It does not include sites being cleared for possible development in the future. Property that is under construction but pre-let or for owner occupation is recorded separately where appropriate. Gross Asset Value is the sum of the Gross Capital Value of properties, cash and marketable securities and other (non-operating) assets. Value-added Investment Vehicles target returns of 11.5% to 17%, with gearing levels between 30% and 70% of Gross Asset Value. Investment volume takes into account all commercial properties BNP Paribas Real Estate is aware of, whose owner has changed during the studied period, whatever the purchasing price. It includes Office buildings, Retail (supermarkets, hypermarkets), Industrial and Logistics Warehousing and Others (Hotels, Cinema, Leisure, Car Parks, Care Homes, parts of portfolio which cannot be split up by product, and Development Sites in Germany). Quoted investment volumes are not definitive and are consequently subject to change. Vacancy represents the total floor space in existing properties, which are physically vacant, ready for occupation in the next three months (this period covers fit-out time) and being actively marketed at the survey date. Vacancy includes sublet space (except in Germany), but where possible, vacant sub-let space is recorded separately. In France, vacancy excludes premises which the owner will renovate only once a lease is signed. Spain only counts immediately available space. Prime Rent/Yield represents the top open-market rent/net yield at the survey date (or in Q4 for annual data) for an office unit: - of standard size commensurate with demand in each location - of the highest quality and specification - in the best location in a market Initial Gross Yield is defined as Gross income (i.e. income before costs of ownership) over purchase price excluding costs of acquisition. Initial Net Yield is defined as Net income (or NOI) over purchase price plus all other costs of acquisition. Investment volume by investor/seller type refers to the following categories: Insurance, Private Investors, Public Sector, Corporates, Property Companies & REITS, Consortium, Funds and Other. Investment volume by investor/seller nationality refers to the following categories: Eurozone, Non-Eurozone, North America, Other America, Asia, Middle East, Australia, International and Other. Major Refurbishments represent refurbishments, where building work must involve either structural alteration, and/or the substantial replacement of the main services and finishes. The quality of the floor space must have been substantially improved from its previous condition so as to offer accommodation of a modern standard – although not necessarily to the standard of a completely new building. Vacancy Rate represents the total vacant floor space including sublettings divided by the total stock at the survey date (or in Q4 for annual data). 1 Pan-European Property Common Interest Group. This group assembles a wide range of European advisors and investors and major agents. 2 European Association for Investors in Non-listed Real Estate Vehicles. BNP Paribas Real Estate Disclaimer clause BNP Paribas Real Estate cannot be held responsible if, despite its best efforts, the information contained in the present report turns out to be inaccurate or incomplete. This report is released by BNP Paribas Real Estate and the information in it is dedicated to the exclusive use of its clients. The report and the information contained in it may not be copied or reproduced without prior permission from BNP Paribas Real Estate. Should you no longer wish to receive this report, or wish to modify the conditions of reception of this report, please send an e-mail to: [email protected] Contacts RESEARCH International Christophe PINEAU Belgium Pascal MIKSE Global Head of Research [email protected] Head of Research [email protected] Stephen ACKROYD France Richard MALLE Senior Analyst Handbook & Occupiers [email protected] Pau BLASI Analyst Investment Management [email protected] Céline COTASSON-FAUVET Head of European Analysis Investment, Retail & Hotels [email protected] Samuel DUAH Head of Forecating [email protected] Maurizio GRILLI Head of Investment Management Analysis and Strategy [email protected] Vincent ROBION Head of Research Logistics & Alliances [email protected] Julien SCARPA Analyst Offices [email protected] Head of Research [email protected] Germany Wolfgang SCHNEIDER Head of Research [email protected] Ireland Julien SCARPA Analyst [email protected] Italy Simone ROBERTI Head of Research [email protected] Luxembourg Pascal MIKSE Head of Research [email protected] Netherlands Julien SCARPA Analyst [email protected] Poland Anna STANISZEWSKA Head of CEE Research [email protected] Romania Catalin MARUNTELU Head of Research [email protected] Spain Emilie GRADASSI Head of Research [email protected] United Kingdom Alistair KEMP Associate Director [email protected] 49 Hong Kong U.A.E MAIN LOCATIONS FRANCE Headquarters 167, Quai de la Bataille de Stalingrad 92867 Issy-les-Moulineaux Tel.: +33 1 55 65 20 04 Fax: +33 1 55 65 20 00 BELGIUM Boulevard Louis Schmidtlaan 2 B3 1040 Brussels Tel.: +32 2 290 59 59 Fax: +32 2 290 59 69 CZECH REPUBLIC Pobřežní 3 186 00 Prague 8 Tel.: +420 224 835 000 Fax: +420 222 323 723 GERMANY Goetheplatz 4 60311 Frankfurt Tel.: +49 69 2 98 99 0 Fax: +49 69 2 92 91 4 ALLIANCES HUNGARY Alkotás u. 53. 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Kennedy 44 HONG KONG 63 /F Two international finance 1855 Luxembourg Tel.: +352 34 94 84 Center - 8 Finance Street Fax: +352 34 94 73 Hong Kong Investment Management Tel.: +852 2909 2806 Tel.: +352 26 26 06 06 Fax: +852 2865 2523 Fax: +352 26 26 06 26 ROMANIA Union International Center 11 Ion Campineanu Street 6th floor, 1st district Bucharest 010031 Tel.: +40 21 312 7000 Fax: +40 21 312 7001 SPAIN C/ Génova 17 28004 Madrid Tel.: +34 91 454 96 00 Fax: +34 91 454 97 65 U.A.E ABOU DHABI Al Bateen Area Plot n° 144, W-11 New Al Bateen Municipality Street n° 32 P.O. Box 2742 Abu Dhabi Tel.: +971 44 248 277 Fax: +971 44 257 817 ALGERIA * NORWAY AUSTRIA RUSSIA CYPRUS SERBIA ESTONIA SLOVAKIA ** FINLAND SWEDEN GREECE SWITZERLAND DUBAI Emaar Square Building n° 1, 7th Floor P.O. Box 7233, Dubaï Tel.: +971 44 248 277 Fax: +971 44 257 817 HUNGARY *** TUNISIA * IVORY COAST * TURKEY LATVIA UKRAINE LITHUANIA USA MOROCCO UNITED KINGDOM 5 Aldermanbury Square London EC2V 8HR Tel.: +44 20 7338 4000 Fax: +44 20 7430 2628 * Coverage via our alliance in Morocco ** Coverage via our alliance in Austria ***Covering Transaction, Valuation & Consulting PLEASE CONTACT Alliances Florence Hesse Tel.: +33 (0)1 47 59 17 38 [email protected] Research Christophe Pineau Tel.: +33 (0)1 47 59 24 77 [email protected] Non contractual document - Research department - BNPPRE 167 - March 2015 - 801 copies - Pictures copyrigth: Getty images BNP Paribas Real Estate: Simplified joint stock company with capital of € 383.071.696 - 692 012 180 RCS Nanterre - Code NAF 7010 Z CE identification number FR 666 920 121 80 - Headquarters: 167, Quai de la Bataille de Stalingrad - 92867 Issy Les Moulineaux Cedex BNP Paribas Real Estate is part of the BNP Paribas Banking Group - March 2015 USA