In the 21 European markets tracked by global real estate advisor Savills, 4.6 mln m2 of office space is expected to be delivered this year, with 4.4 mln m2 predicted for 2024, a 27% growth on the historical average.
The cities with the largest percentage of speculative space out of current stock are Barcelona (8.1%), Bucharest (5.7%) and Berlin (5.4%).
However, Berlin’s vacancy rate remains low at 3.3% so is more protected to the level of new deliveries.
With vacancy rates around 10%, Barcelona and Bucharest are perhaps more exposed to greater levels of new office deliveries, but over the next two years, this will give occupiers much-needed ESG compliant space.
Mike Barnes, associate director European research at Savills, said: ‘Across the European cities we monitor, new speculative space under construction during 2023/24 accounts for an average of 2.6% of total office stock, which we expect will be absorbed by 2024. In 2022, European office take up reached 2% above the pre-pandemic average and although we anticipate a weakening in demand in 2023, competition for prime stock will remain high, and any rise in headline vacancy rates will be accounted through secondary stock being returned to the market.’
Simon Collett, Savills head of building & project consultancy, UK and EMEA, added: ‘17% of European office development scheduled for completion in 2022 has been pushed back into 2023/24, with the Czech Republic, the Netherlands and Belgium indicating the highest construction job vacancy rates of the countries we have analysed. Given continual delays to source materials and labour, along with uncertainty over debt costs, it is more than likely that completion dates will be pushed back further. Due to relatively low prime vacancy rates, particularly across core western European office markets, we expect local developers will be seeking to comprehensively refurbish well-located older stock in order to capture rental uplift.’
Although Savills anticipated that 5.4 mln m2 of office development would be completed in 2022, the latest data shows that only 4.5 mln m2 was actually delivered.
Meanwhile, Savills latest global Prime Office Costs (SPOC) analysis shows that prime office costs in the EMEA region rose an average of 3% during Q1 2023.
Amsterdam led the pack, with fit-out costs rising by 18%, while other European cities seeing cost increases include Paris (+4%), and Berlin (+3%).
Christina Sigliano, head of EMEA occupier services at Savills, commented: ‘While there have been many headlines about corporate occupiers’ space strategies lately, largely led by some turbulence in parts of the tech sector, the fact is that prime office space remains in high demand in many key markets, and this is reflected in the all-in cost to occupiers rising an average of 1.1% in Q1. With pipelines of top space continuing to look slim in many cities, those looking to move – not just those in the next 18 months, but beyond this – need to start considering their options now.’