Europe’s strongest office markets boosted by generous incentives

The consultants’ latest report shows that markets perceived as stronger within Europe, such as London and Paris, are being boosted by higher rental concessions to tenants than those perceived as weaker - a sign of growing confidence in the cities’ commercial property sector.

The survey examines the impact that economic challenges in the period 2008 – 2013 have had on headline rents and rental incentives offered by landlords across 19 European markets.  The firm notes that London City, Paris CBD and Paris La Defense currently offer some of the highest available discounts - approximately 20% of the total months over a lease term.

Julia Maurer, European research analyst, comments: “Over the past five years landlords in some of Europe's prime office markets have lengthened rent free periods to support headline rents. This means that markets such as London and Paris, where landlords should be feeling more confident, have surprisingly large incentives on offer."

On average rent free concessions for prime CBD space have increased by 21% across Europe in 2013 compared with 2008 and currently account for an average 12% of the total rental period in the markets examined.  The highest percentage of rent free months offered in the markets surveyed is in Milan (25%), followed by the two Parisian markets, CBD and La Defense, (21% each) and London City and Dublin (each 20%). 

Athens, on the other hand, where prime headline rents have plummeted by 30 per cent over the past five years, only offers 2% of months rent free.

The report concludes that incentives are determined by several factors, including availability, demand and local characteristics, but that incentives are a “good indicator” of the general market sentiment.

Indeed, Savills adds that the outlook is particularly positive for London, Vienna, Brussels and Warsaw, all of which recorded year-on-year take-up increases of approximately 20%.

Eri Mitsostergiou, Savills European research director, says: “We are seeing a moderately positive trend across European office markets as the average amount of rent free periods offered is in some cases decreasing.  German cities in particular reflect this trend, with rent free periods either stable or going down and only a small difference between headline and effective rents.”