Improving economic growth will drive increased demand for commercial real estate
This year has begun equally well, with some significant transactions already reported in a number of cities. However, the general consensus is that most markets are approaching the end of the current cycle. This has led us to think that 2018 is likely to mark a turning point for most markets. From the perspective of market fundamentals vacancy rates are likely to fall further or remain stable in most markets, with the exception of some late cycle markets notably, Central London, Dublin and Budapest. On the other hand some markets, particularly in Germany, show signs of the occupational segment tightening with vacancy rates at or below 3.0%. The situation in Berlin is particularly noteworthy, with the vacancy rate already at a low of 2% and expected to fall further to 1.8% in 2018.
Consequently, 2018 will be a good year for rental growth, particularly for prime assets. For the top 15 markets in Europe we forecast prime rental growth to average 3%. Some of the strongest rental growths will be seen in the cities of Berlin (9.7%), Madrid (7%), Hamburg (5.7%) and Helsinki (5.6%). These cities with strong economic prospects as the backdrop will remain the most attractive and popular for investors.