Highlights
Rising rents, flexible space and investment opportunities
European office real estate markets 2024
Research view
European office real estate markets 2024: rising rents, flexible space and investment opportunities
The European office real estate markets are showing stable development in 2024 despite the subdued economic situation. As inflation rates decline, optimism is rising in the business world, which is also reflected in the growing demand for modern and flexible office space in central locations in major European cities. At the same time, prime rents for office space in Europe are rising, while investors are again able to achieve more attractive returns.
European office real estate markets 2024: trends, rents and investment opportunities
The European economy has stabilised in recent quarters despite modest growth prospects. This development is also reflected in the development of the European office property markets. Especially since the significant decline in inflation rates in 2024, many companies are looking to the future with more optimism again. This positive trend is also reflected in the office rental markets in Europe.
The author: Maximilian Krebs
Real Estate Research Analyst @ Union Investment
Date: October 2024
Office rental markets: demand for flexible office space is increasing
In the first half of 2024, lettings performance for European office space was around 2.5 million square metres, just below the previous year's figure. Interestingly, however, the market recovered in the second quarter, recording a 4.3 per cent increase over the previous quarter. Many European office markets were also spared from a further increase in vacancy rates.
Demand for high-quality, flexible office space in central locations of major European cities remained high. In particular, hybrid workplace concepts that enable a combination of home and office work have become firmly established in many companies. Since the supply of suitable, centrally located and modern office space is still limited, there is a significant demand overhang in this segment.
Rental price development in European office markets: prime rents are rising
In the twelve most important European office markets, prime rents for office space rose significantly in the first half of 2024 – by 5.1 per cent compared to the previous year. This development is the result of the continued high demand for space in very good locations with modern and flexible floor plans and good standard of fittings, the supply of which remains scarce.
Office property investments in Europe: stabilisation of yields
The European office property investment markets are also showing the first positive signs. Further interest rate cuts are expected, which should lead to a further stabilisation of yield levels. The average yield for office property in Europe is currently 4.8 per cent, and investors are now once again being offered attractive purchase opportunities.
