08.07.10
The combination of an uncertain rental outlook and constrained access to development finance will delay the start of the next European office development cycle, according to a new report by CB Richard Ellis "A new office development cycle? Not yet.". London is currently the only major market where there is any substantial evidence of interest in reactivating delayed schemes for delivery beyond 2012.
Recent indicators have suggested a measure of improvement in the European office markets: rents have stabilised, vacancy rates are peaking at lower levels than in previous cycles, and leasing activity has increased from its mid-2009 lows. Despite this improvement, analysis of development pipelines in the major European markets shows that the absence of new starts, in the face of an uncertain market outlook, will cause a sharp drop in completions next year and that, by 2012, completions will be running at less than half their recent peak.
Clearly an accelerated economic recovery would help to spur the next development cycle in Europe, but current forecasts suggest employment in financial and business services across Europe may not return to previous peak levels until 2012-13. Therefore with demand-side pressures on rents remaining subdued, it could take considerable time in some markets for speculative development to resume, even if finance availability improves.