Fall 2013: Growing office rental cycles — With prime office markets on the rise, caution is forewarned due to an unforeseen growing trend
European prime office markets are currently enjoying or about to start enjoying a long cycle of rental growth. The lack of development finance has created a vacuum of good quality space in many locations, and many office tenants are bidding up rents in the best buildings. Furthermore, rents are highly affordable. Top rents in most locations represent a very small percentage of business revenue. When sentiment is positive, businesses will have a greater tendency to upgrade their space, particularly if they perceive it to be cheap.
But some caution is necessary. The European economy, while on track, is still not yet growing at trend. Northern European economies have beaten expectations, and confidence is high, but their banks are still cleaning up their respective balance sheets and business lending is still weak. Southern European economies remain indebted, and their economic prospects are weaker than in Northern Europe.
While we strongly believe there will be a l