Austerity measures across Europe polarize office markets says DTZ Echinox

Investors in office spaces across Europe have a limited appetite for risk, shows DTZ Echinox’s “Impact of Europe’s austerity measures” report. Pricing has driven returns in the most exposed markets to around 25 percent higher than in the least exposed ones, according to the same source.

The criteria taken into account for the analysis are national debt as a proportion of GDP, GDP growth and the percentage of public sector job cuts (as a proportion of total office employment). Greece, Ireland, Italy and Portugal are categorized as the “most exposed” by matching two or more of the criteria. Five countries including Germany and the UK, match one criterion and are classified as “marginally exposed”. Those matching none of the criteria are classed as “least exposed” and are dominated by economies outside the Euro including the Nordics and CEE nations. Most exposed markets were found to have annualized total returns of 8.4 percent pa, marginally exposed 7.8percent pa and the least exposed 6.7 percent pa.

Although total returns are higher in the most exposed markets, rental growth remains subdued. Forecast job cuts are acting as a drag on office markets as the effects of austerity measures impact directly on public sector employment numbers and indirectly on private sector growth.

Back in Romania, considering the forecast GDP increase and as economic expansion generally leads to higher employment levels, the office spaces market could expect a development in the next period, said Bogdan Sergentu, head of valuations and consulting at DTZ Echinox.

“However, considering the elevated risk of contagion and the economic relations between the four countries highlighted as most exposed to austerity measures (namely Greece, Ireland, Italy and Portugal) and Romania, any relevant outcome is difficult to predict and has a high degree of uncertainty,” he concluded.