Prime CBD office rents across European office markets will continue to rise over the next quarter, with a 3.1% year-on-year increase expected in Q411, property services firm Savills said on Thursday.

London City, Lyon, Frankfurt, Brussels and Milan are forecast to be leading the way in terms of rental recovery, the broker added.

Demand remains predominantly in CBD locations, with the ICT sector particularly active, notably Google which has taken office space in London, Paris, Amsterdam and Dublin in 2011. Savills has noted a significant slowdown in development activity across European markets over the past two years and expects this to lead to an increase in the level of pre lettings, particularly in CBD locations

'Rare and expensive new CBD office spaces might deter some office occupiers who may consider relocating into secondary areas, but CBD locations will remain the jewel in the crown for major tenants,' commented Lydia Brissy, Savills' European research director. 'As pipeline is very short prime rents are expected to keep on rising, for example in Stockholm where a shortage of prime modern office premises resulted in a strong rental growth in Q1 and Q2 of this year.'

In terms of letting volumes some markets including Berlin, Lyon, Hamburg and Warsaw showed an increased level of turn-over but overall volumes are expected to decline on average by 6.5% across Europe at year end.

'We expect to see occupier caution in the rest of 2011 and letting activity will largely stem from occupiers attempting to make cost savings, in some cases by relocating to smaller offices,' noted Eri Mitsostergiou, director in European Research.