Take-up and rents look set to rise in Europe’s office markets this year as investors return to the sector, with negative sentiment “overplayed”, according to the team at Savills.
The agency expects take-up to rise by 4% this year, following a 5% increase in 2024. That would leave take-up at the end of 2025 standing 10% below the pre-pandemic average, in line with the agency’s forecast from back in 2022.
“It has become clearer that following the surge in agile working hype, companies are becoming more committed to the office sector over the longer term, and some occupiers are applying more pressure on employees to increase office attendance,” said the report, written by European research associate director Mike Barnes and global cross-border investment director James Burke.
“Occupier preferences have gone ‘full circle’ and tenants are now opting to increase the provision of desks, on top of a marked increase in demand for meeting rooms and breakout areas to meet employee requirements.”
Vacancy rates have stabilised in Europe, Savills said, and tenants are beginning to withdraw ‘grey’ space from the market, instead planning to use the space to accommodate new hires. The firm expects average prime rental growth of 2.7% in 2025, marking the return of real rental growth.
“Hybrid working is here to stay, but many companies are still working out what hybrid means for their business,” Barnes and Burke added. “We are tracking strong requirements for flex space, particularly with modern designs, collaborative areas and enhanced amenities, which can be vital for attracting and retaining talent.”
Investor sentiment appears to be improving, the firm said. It expects more activity from North American private equity, noting that this trend has been “order of the day in London and Dublin” over the past year.
“Offices fell down the investment wish list in 2024, accounting for only 22% of total European transaction volumes between Q1 and Q3, down from 37% five years ago,” Barnes and Burke said. “However, we are tracking an increase in the number of underbidders for prime Central London and CBD Paris office stock, reflecting an increased pool of buyers.”
Distress is less prevalent than had been expected at this point in the cycle, Savills’ team said, with banks opting to extend existing terms and a recovery of bank lending likely this year.
“While the office sector is not out of the woods, much of the negative sentiment towards offices feels overplayed,” Savills said. “Recovering demand, scarce grade-A stock and a limited development pipeline will deliver real rental growth for prime stock in 2025. Core investors will maximise their returns by securing new CBD stock before their competitors return to the market, whilst value-add investors who can redevelop well-located space to the market will see returns outperform.”
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