Athens office rental market skimping on discounts

By Nikos Roussanoglou

Athens offers the smallest discounts in rental rates for professional properties among 21 cities in the Europe, the annual report by Savills estate agents has found.

The average lease rate discount recorded in the Greek capital was 2.5 percent, the UK-based company found, which translates to free rent for a period of just a-month-and-a-half on a five-year lease for a renovated office space at a prime location.

According to the study, after the Athens market, the smallest financial incentive for individuals or companies to rent professional premises is found in the German cities of Berlin and Hamburg (where discounts average at 5 percent), followed by Frankfurt and Dusseldorf (both at 6.7 percent). In contrast, markets where demand for professional space is traditionally very high, such as in Paris and particularly in La Defence neighborhood, and London, continue to offer the best incentives in Europe by reducing rental rates by as much as 20.8 and 18.3 percent respectively, meaning 13 and 11 months free tenancy in a five-year period.

According to experts, offering several months of free rent to new tenants on long leases is a fundamental part of how mature markets work and how they attract prominent entrepreneurs and companies to their commercial districts.

The friendliest city in Europe to rent professional space is Milan, where lease discounts can reach as high as 25 percent, translating to 15 rent-free months over a period of five years.

On the flip side, parts of Europe where incentives are strong also have very high rental rates, compelling property owners to follow more aggressive tactics to attract new clientele. Another factor contributing to bigger discounts is the level of competition in any given professional property market, which is normally determined by the percentage of commercial spaces that have remained untenanted for a long period of time.

In its study, Savills found that market conditions in Europe have seen an improvement since the start of the year due to a spike in demand, resulting in smaller discounts at prominent locations. In London for example, there were more new professional leases signed this year than there were in 2000. On average, the period of gratis rental in the 21 markets that were studied has declined by 11.4 percent so far this year, with Dublin and Hamburg leading the way, as discounts there have dropped by half since the start of 2014.

On the other hand, the rental market for professional spaces in Athens has seen a significant drop in rental rates since the start of the crisis. According to the most recent data of Savills Hellas, from the start of the crisis and through end-2013, the decline in professional rates is as high as 40 percent in some cases. Comparatively low rental rates explain why discounts are not more generous, as is the case in other parts of Europe. Another factor is that the percentage of vacancies is extremely low in new, modern professional properties, given a general shortage in the Greek capital. International realty investors, especially those who buy with the purpose of renting, note the absence of modern buildings in Athens as a disincentive.

Another interesting finding made by the survey is that there continues to be a large divide between what renters are looking for and what owners expect to get for their properties in Athens. Savills concludes that companies looking to lease a professional space expect to pay rates between 25-30 percent lower than average asking prices. The company also adds that interest in new leases is just starting to show signs of a rebound in the Greek capital, stressing that it will take several years before a recovery is seen in the professional realty market.