The report - European Office Rental Growth Hotspots 2018 - identifies ten markets in Europe set to experience supply-led office rental growth outperformance in the next two years. Amsterdam will see the greatest increase, followed by Stuttgart, Stockholm, Munich, Prague, Barcelona, Edinburgh, Dublin, Utrecht and Warsaw. Just outside the top ten, in the top 15, sit UK regional office markets Manchester, Leeds and Birmingham which also offer substantial potential for further rental growth driven by a lack of supply.

The findings are based on results from JLL's Supply Sensitivity Index, which takes into account seven metrics – such as future supply and rental sensitivity - across 35 European cities over a 20 year time period, and which more deeply explores the relationship between supply and net effective rental growth, complementing traditional macro-economic forecasts. 

Peter Hensby, head of EMEA offices capital markets, JLL, said: "Investors are facing challenges with record pricing and so for them, finding those income-driven returns is crucial. From our research and our conversations on the ground, we know that office supply – or lack of it – is likely to play an increasingly important role in rental growth over the next few years. So our Supply Sensitivity Index has been developed for investors to show them where they can get that all-important edge in their investments."

Ones to watch

Submarkets will continue to outperform in 2018 and 2019, as the lack of modern, efficient office supply in traditional central business districts will drive occupiers to second-best areas offering high quality space. The report goes into detail on five markets in the top ten which are supported by structural improvements, differentiators, solid property fundamentals and strong occupier demand:

1. Amsterdam – South East and Sloterdijk/Teleport
2. Stuttgart – City Centre & Vaihingen-Mohringen
3. Stockholm – Solna/Sundbyberg (Arenastaden)
4. Munich – East (Wierksviertel)
5. Prague – Prague 1

"Understanding which submarkets will be a short-lived bounce and which are supported by long-term factors will be key to success. Stuttgart and Prague might be surprises to see in the top five, but with vacancy reaching record lows and speculative development limited, all the ingredients are there for some real rental growth in the next couple of years," added Hensby. 
 

About the Supply Sensitivity Index

JLL's Supply Sensitivity Index provides a measure to explore the relationship between supply and net effective rental growth. It offers a complement to traditional macro-econometric forecasts that can add valuable insight to the decision making process. Linked to net effective rents rather than headline rents, it offers a broader perspective on market performance, pinpointing potential hotspots for availability-driven growth across Europe in the next two years.

The Index is based on a 20-year time series across data from 35 European cities - where available - and incorporates seven metrics ranging from current and future supply, to sensitivity of rents and supply absorption. The final Sensitivity Supply Index provides a combined score which indicates the potential for supply-driven rental growth for each city.