Across European cities, prime CBD rents have grown by an average of 19% over the last five years, while prime non-central rents have risen by 9% over the same period. Düsseldorf, London’s West End and Amsterdam have all recorded CBD rental growth more than twice as strong as non-central rents.
Since 2020, European office tenants have increasingly opted to relocate to Central Business District (CBD) locations, which is driving outperformance of prime rental growth in central locations.
Attracting and retaining talent
We are seeing that tenants are seeking better quality office space, in well-connected CBD locations in order to attract and retain talent. Earlier this year, Savills conducted a global survey of tenants, landlords and developers to understand their priorities and expectations, according to which the biggest priority for survey respondents is being close to a key transport hub. For every five minutes a prime office is located closer to a city’s major transport hub, occupiers can expect to pay an average 6.7% more in rent, Savills research finds.
In London, HSBC announced it is moving from Canary Wharf to the City, while in Paris, EY will move from La Défense to 30,000 sq m in the CBD. More recently, KPMG confirmed it is moving from The Squaire to two buildings in central Frankfurt. This is against a backdrop of European office development completions entering their lowest level for ten years, adding upwards pressure on prime rents. Prime vacancy rates in CBD locations are around the 2-3% mark in many European cities, limiting options for footloose occupiers.
What will happen to rents going forward?
However, given record high Eurozone inflation in recent years, CBD office rents are still down by 4% in real terms compared to pre-pandemic levels, indicating that tenants are paying less on rent as a share of their total costs. Over the last 12 months though, prime CBD rental growth has outpaced inflation and we expect this trend to continue for the next couple of years, given the shortage of supply.
Rental growth prospects remains strong for prime CBD offices, and tenants who are unable to pay more for well-located stock will be forced to look to less central markets. Given leasing deals are taking longer to complete, tenants will maximise their chances of securing prime space by starting their searches early.
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