Office supply shortages will be the main driver of above-average rental growth in specific European cities, says adviser JLL. High on a list of the 10 markets it identifies as tightest over the next two years are Amsterdam, Stuttgart and Prague.
The report - European Office Rental Growth Hotspots 2018 - says Amsterdam will experience the strongest rental increases, followed by Stuttgart, Stockholm, Munich, Prague, Barcelona, Edinburgh, Dublin, Utrecht and Warsaw. UK regional markets Manchester, Leeds and Birmingham just miss the top 10 but are in the top 15.
The findings are based on results of JLL’s Supply Sensitivity Index which takes into account seven metrics such as future supply and rental sensitivity across 35 European cities over a 20-year period. It more deeply examines the relationship between supply and net effective rental growth, complementing traditional macro-economic forecasts.
"Investors are facing challenges with record pricing and so for them, finding those income-driven returns is crucial," commented Peter Hensby, JLL head of EMEA offices capital markets in the report. "From our research and our conversations on the ground we know that office supply – or lack of it – is likely to play an increasingly important role in rental growth over the next few years. So our Supply Sensitivity Index has been developed for investors to show them where they can get that all-important edge in their investments."
Submarkets will continue to outperform in 2018 and 2019 as the lack of modern, efficient office supply in central business districts drives occupiers to second-best areas. It names five of the markets in the top 10 supported by structural improvements, differentiators, solid fundamentals and strong occupier demand. These are:
- Amsterdam – South East and Sloterdijk/Teleport
- Stuttgart – City Centre & Vaihingen-Mohringen
- Stockholm – Solna/Sundbyberg (Arenastaden)
- Munich – East (Wierksviertel)
- Prague – Prague 1
"Understanding which submarkets will be a short-lived bounce and which are supported by long-term factors will be key to success," added Hensby. "Stuttgart and Prague might be surprises to see in the top five, but with vacancy reaching record lows and speculative development limited, all the ingredients are there for some real rental growth in the next couple of years."