The 12-month rental outlook for both prime and secondary CBD offices is stable in Bucharest and Budapest and negative in Warsaw. In Prague, the outlook is negative for prime assets and stable for secondary assets. The vacancy rate is expected to increase over the coming year in all of the four capital cities. Occupier conditions are currently neutral across the region, with Bucharest and Budapest expected to become tenant markets over the next 12 months, according to Colliers International.
EMEA office markets will stage a swifter and stronger recovery from the COVID-19 pandemic crisis than expected, according to the EMEA Head of Research at global real estate advisor Colliers International.
“The market will come back, possibly quicker than expected, in the second half of 2021. Even though vacancy is going to increase, it is going to be primarily from the release of less attractive space, while the demand and the availability of core space is going to get tighter, creating higher prime rents, long-term,” Damian Harrington, Head of EMEA Research at Colliers said.
Mr Harrington said the recovery of the EMEA office market was linked to the wider context of the economic recovery path of countries across the region. Although office take up had declined in the first three quarters of 2020 as a result of decisions being put on hold the market is still not looking as bad as during the Global Financial Crisis (GFC) of 2007-09.
“Net absorption and take up may continue to drop to the end of this year and into 2021, but I still don’t think we’ll quite hit GFC levels,” he said.
“Even when we do get the bottom, I think the rebound is going to be a lot sharper because unemployment rates are not as high as they were during GFC. Furloughing and government stimulus are sustaining employment levels, which supports a quicker rebound when markets do return. Post-GFC, it took about five years from the trough before labour markets got back to parity. This key factor looks very different this time around”.
He highlighted prime headline office rents had remained largely unchanged across EMEA, although greater incentives were being offered, particularly in more densely occupied markets. Although office vacancy levels had started to trend upwards, the EMEA average was only up to 6.5 per cent, over 200 basis points below the cyclical (14 year) average.
The strongest EMEA office market is Berlin, which has a vacancy rate of just 1.4 per cent and has rent stability in both prime and secondary CBD areas. It is presently regarded as a landlord market and is forecast to remain a landlord market in 12 months’ time. By contrast, Dubai has a vacancy rate of 40 per cent and rents in both prime and secondary CBD areas are decreasing while vacancy rates are expected to increase. It is currently a tenant market and is predicted that this will also be the case in 12 months.
Mr Harrington pointed out that unlike during the GFC, there is much broader policy support for fiscal stimulus at government and supra-national levels, such as from the International Monetary Fund and World Bank supporting a quicker recovery from the economic impact of the pandemic.
“That said, the impact on European business sentiment and the outlook for GDP is waning in light of a second wave of COVID-19, so the challenge of mitigating this pandemic until vaccines are available can feel enormous. Yet the market will recover. China is already moving through the recovery phase into consolidated growth, with GDP figures for Q3 2020 representing a 4.9 per cent increase in economic output year on year. Most other Asia-Pacific countries are working through their second wave of COVID-19, with active cases diminishing, and their economies recovering.
“We are all waiting and hoping for a vaccine to be ready that is globally distributed. This is looking increasingly like the second half of 2020, given that multiple vaccines are into phase three of testing and human challenge testing is also set to start for some at the end of 2020, or the beginning of 2021. Of course, vaccines will take time to be distributed across global populations, so we will respect social distancing well into 2022, but we have shown we can and will adapt. ”
Mr Harrington said that most European economies appear set to return to growth in the first half of 2021, although another raft of local and national lockdowns may push the economic recovery back.
“The economies with the best healthcare capacity and management of the virus look like being the ones that will be out of this sooner, as per the first wave, with the DACHs and Nordic markets most prepared,” he added.
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