The office real estate market in Europe - statistics & facts

The performance of the European office real estate market is strongly connected to the development of its domestic economies. Though the European economy is on a path of recovery from the effects of the coronavirus (COVID-19) pandemic, the office real estate sector still has a long way to go before reaching the pre-pandemic levels. The demand for office real estate in Europe remained suppressed throughout 2020 and the first half of 2021, with quarterly take-up below the four-year average. With leasing activity slowing down, vacancy rates rose across the major office markets. Nevertheless, certain cities were more impacted than others: In London, for example, the vacancy rate reached 8.7 percent in the second quarter of 2021, while in Berlin it was 2.9 percent.

Investment activity

Office has long been the most popular asset class among real estate investors, accounting for between 40 and 50 percent of investment volumes. Paris and London, as well as Germany’s big four (Berlin, Frankfurt, Munich, and Hamburg), concentrate the lion’s share of European investment activity. In the second quarter of 2021, Central Paris attracted investments worth 3.8 billion euros, which was 500 million euros more than Central London. Home of one of the biggest foreign exchange markets in the world, The London Stock Exchange, and the headquarters of many major global companies, such as HSBC, BP, Unilever, and Barclays, the office real estate sector in London has historically been one of the most competitive ones, with prime yields as low as 3.5 percent as of the third quarter of 2020. In Germany’s big four, yields were even lower at under three percent.

Rents and take-up

One of the reasons why the big economic centers of continental Europe are slowly stealing London’s spotlight as Europe’s number one office market is that rents are much more affordable. Renting a square meter of prime office space in Germany’s capital, Berlin cost roughly one-third of London rents in the second quarter of 2021. With rents substantially lower, cities like Berlin, Stockholm, Stuttgart, and Cologne have higher potential for rental growth than London and Paris. Furthermore, lower rents also attract occupiers: in the first quarters of 2020 and 2021, office take-up in many European cities, such as Germany’s big four, Central Paris, Milan, Madrid, and Brussels increased, while Central London observed the opposite trend.

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