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Allan Saunderson is managing editor of Property Finance Europe and a contributor to GlobeSt.com.

LONDON-Rents and development activity in many locations in Europe will continue to decline over the next six months, while vacancies will rise as the economy recovers only gradually despite the improvement in European economic sentiment, says international realtor Savills.

Prime CBD rents dropped 10.5% across Europe in third quarter, leading Savills to predict average annual CBD office rental growth for 2009 falling by around 11.0%. At the same time, average rents for 70% of 33 cities surveyed by Savills will fall over the next 6 months, while only 25% will remain stable. In development, demand will drop over the next six months, boosting supply by 65%. Average rates currently stand at 10%, 35% higher than in the first half of ’08, and these are set to rise further in most locations.

Savills European research analyst Eri Mitsostergiou says, “Economic sentiment is improving, but the recovery is expected to be slow. Take-up levels, although improved in some locations in the second quarter of 2009, are still considerably lower compared to last year and prime CBD rents are also lower in comparison to 2008. We do not expect these trends to change significantly over the next six months.”

European headline prime office rents will remain steady in the fourth quarter in 14 of 33 locations. Amsterdam, Athens, Dublin, Bucharest, Edinburgh, Luxembourg, Manchester, Marseille, Oslo, Milan, Prague, Rome, Vienna and Zurich are expected to hold steady. More than half the cities surveyed showed improved leasing activity in second quarter, but the recovery will be slow as growth remains largely negative and some countries forecast rising unemployment. In response to a repricing of rents and an overall drop in take-up of 44% over the first half, occupiers have renegotiated many existing leases, rather than relocating to new premises. This has led to a rise in incentives, particularly in London, Amsterdam, Paris and Brussels.

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