IPF: Berlin tops Europe’s office rental growth forecast leader board

Office annual rental growth across almost all major European cities is forecast to moderate over the coming three years from 2.8% in 2019 to 1.4% by 2021, according to the IPF’s latest European Consensus Forecasts, with London’s West End the only market expected to deliver rental growth over the period.

Berlin tops the leader board for the strongest near-term rental growth rate with 6.7% in 2019, in the first survey of 2019, before moderating to 5.0% next year and falling to 2.1% in 2021. A cluster of cities fall behind Berlin, including Stockholm (2019: 4.8%), Lisbon (2019: 4.8%), Oslo (2019: 4.6%), Barcelona (2019: 4.5%), Madrid (2019: 4.5%), Frankfurt (2019: 4.1%) and Amsterdam (2019: 4.0%).

Within this city cluster, Madrid emerges as the most resilient city in year two of this round of fund manager and investor forecasts, with 3.6% rental growth predicted, followed by Barcelona (2020: 3.0%), Stockholm (2020: 2.9%), Amsterdam and Oslo (2020: 2.8%).

Marginal improvements in 2021 forecasts that exceeded those for 2020 (only eight in number) were insufficient to halt a decline in the average across all 29 markets to just under 1.4% in that year (from 1.8% in 2020). Longer-term outlooks have softened for Berlin and Madrid, possibly a reflection of emerging concerns over affordability, although the loss of stronger 2018 data may be a contributing factor, whilst Milan forecasts have also been downgraded, likely in response to falling economic sentiment.

By contrast, the outlook for the City of London is the weakest: rents are expected to fall negative this year, -0.8%, followed by -0/9% in 2020, before recovering to 1.3% in 2021, while the West End is predicted to see rents climb from -0.4%, to 0.0%, and 1.1% over the next three calendar years.

Warsaw has seen the biggest upgrade for the current year (up 300 bps from six months ago) followed by a stronger 2020 outlook than the negative forecast reported in November (-1.5%), consistent with a general improvement in sentiment towards Polish offices.

Outside of the UK, the only other market predicted to see negative rents in the coming three years is Dublin, which is expected to slip to -0.1% in 2021 – thus, while the broad market picture is one of moderation, the 22 fund managers and investors surveyed still expect rents to remain in positive territory for the 29 European cities. IPF said there were insufficient rental growth forecasts for Athens to permit the inclusion of data and analysis on this occasion. All forecasts were generated within six months of the survey date of 24 April 2019 and 16 within the last two months.

james.wallace@realassetmedia.com