Research article

Occupier futures

Where a city is placed within the rental cycle is an important consideration for occupiers

Occupiers in European cities are faced with a variety of different market conditions. Some cities, like London, Paris, Frankfurt and Stockholm are at or near the top of the rental cycle and are unlikely to see rising rents and may even continue to see small falls. Others are one or two years away from their peak. Moscow hasn’t yet seen the start of a conventional rental cycle because, although demand has been strong, the city has an unusually elastic supply pipeline for both offices and residential property. Moscow was hit by oil price hikes after 2014 and saw substantial rent falls so is nearing the start of a new rent cycle.

Figure 10 summarises the expected outlook for occupier rents in key European cities where forecasts have been made. Significantly, there are no predictions of substantial rent falls. This is highly reflective of the limited supply side in many European cities, particularly in or near the historic centre where demand is high but land for development and planning permits are scarce.

Figure 10

FIGURE 10Prime CBD Forecast Rents 2017

Source: Savills World Research

The overwhelming characteristic of all the cities is a strong desire among occupiers to be in a vibrant, active and mixed-use city centre, not only for both living and working but for playing and visiting as well. This has huge implications for all our cities which will change the urban form as well as property markets. We have noticed that workspace rents have started to equalise between traditional financial office space and less conventional urban workspace in alternative, but still central, locations. We expect this to continue.

We foresee that there will be an increasing need for investors and developers to repurpose outdated and outmoded office campuses into mixed-use, new ‘urban villages’ in order to satisfy occupier demands in the 21st century. The willingness of investors and developers to create more genuinely city-like environments will be more and more important for corporate occupiers as they compete for human capital. It is the cities themselves that will be attracting young, skilled and valuable global workforces in future, much more than the organisations within them. Corporate occupiers will add value to their business interests by locating in these successful cities but risk devaluing their enterprises by picking the wrong ones.

Figure 11

FIGURE 11European Prime Office Rental Cycle Q4 2016

Source: Savills World Research

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