The latest Knight Frank European Quarterly reports that Q1 2016 was a strong quarter for European office occupier markets, but there was a sharp slowing of investment market activity.
Office take-up in the major European markets monitored by Knight Frank increased by 12% in Q1 2016 compared with the same quarter of 2015. The improvement was driven by the robust performance of the key German markets and Paris, where take-up increased by 47% year-on-year.
The strength of occupier market demand led to moderate rental growth in Q1, with prime office rents rising in cities such as Milan, Paris and Stockholm. As a result, the Knight Frank European Prime Office Rental Index rose by 0.3% during the quarter.
In contrast to the improved occupier market activity, investment volumes decreased significantly in Q1. A total of €37.4 billion was invested in European commercial property during the first quarter, a 36.9% decrease compared with Q1 2015.
The fall in investment volumes reflected growing concern among investors over a range of global economic and political risks, including the upcoming Brexit referendum. Nonetheless, the Q1 volume was high enough to make it the second strongest opening quarter of the post-global financial crisis era, beaten only by 2015.
The decreased investment activity in Q1 was not accompanied by a similar fall in prices. Prime office yields remained stable in most markets, but hardened in a small number of cities including Brussels, Munich and Stockholm. As a result, the Knight Frank European Weighted Average Prime Office Yield declined by 2 basis points, to a record low of 4.76%.