MIPIM 2009: Europe's occupational sector will be key in next 12 months

At a MIPIM briefing today JLL's Europe Middle East and Africa (EMEA)business heads outlined their expectations for occupational markets in Europe in 2009 and the implication for investors.

Nigel Roberts, chairman EMEA research at JLL, said: 'Today’s economic outlook is more challenging than many of us have ever encountered. We are in the midst of an unprecedented global economic downturn. The impacts are reaching far and wide into the fabric of our economies, and occupiers of all kinds are impacted.

'For many, space requirements are on hold, property costs are under pressure and new demand is a rare commodity. Whilst many forecasters are predicting a return to economic growth sometime during 2010, this will require a return of liquidity and confidence; two essential ingredients for the effective functioning of our economies and real estate markets. In this respect, the immediate future is very much in the hands of our banks and the success of government support.'

Tony Horrell, JLL's head of capital markets said: 'Opportunities at pricing levels not seen for many years will begin to emerge this year. The large western investment markets that are re-pricing the quickest will attract most attention from the investor community. Emerging markets will come back in time but we expect greater volatility in the short term, and they will attract investors who buy the medium term story and lower relative cost base.

'Re-pricing and FX benefit continues in London which accounts for the strong interest from the international investor community; it offers long-term secure income at yields not experienced for some time.

'Paris is less exposed to the financial turmoil than London and has a wide tenant base seeking value-for-money quality accommodation. Munich is a stable market with low volatility and lower rental levels than other key European markets which will remain attractive to some investor types. Despite not being immune from economic risk, Central and Eastern Europe now has a strong history in outsourcing which should place it in a strong position over the next several years.'

London could provide more choice for ocupiers said Neil Prime, head office agency England at JLL.

He said: 'On a positive note occupiers in London have choice: top quality product is being delivered. What’s more, they have value: in real terms, net effective rents will soon be as competitive as they have ever been in the City. Our forecasts show a bottoming out in rents in both the City and the West End in 2010 and 2011, and then rebounding in 2012, with a rapid acceleration in 2013.

'At the moment occupiers have the upper hand. We believe that employment will continue to contract over the next couple of years with 2009 likely to be the worst. This headcount reduction, coupled with a resistance to sanction major capital expenditure, will have a significant impact on take-up levels.

'However, there always is and will still be a market in London. Activity will be driven by structural events and physical obsolescence rather than growth and expansion. We anticipate seeing continued consolidation and acquisition in the financial and insurance sectors, some of which will generate property requirements.'