Understanding the European Commercial property investment landscape
The first half of 2025 presented a nuanced picture for European commercial real estate investment. The market initially saw robust activity, but subsequently slowed, reaching a total volume of €77.8 billion for the first six months.
This 5% year-on-year growth on a rolling basis was tempered by macroeconomic uncertainty and new tariff announcements. While investment in office properties struggles to regain sustained momentum, sectors like retail and healthcare continue to show strength. This broader investment climate influences the availability and quality of properties that ultimately come to market for businesses.
Liquidity returns, opportunities emerge
Despite the broader economic headwinds, the market has seen a resurgence in liquidity. This is partly due to 'forced sales' driven by debt maturities or ESG compliance requirements, alongside more favorable financing conditions that are enabling large-scale transactions. For businesses, this indicates a potentially more dynamic market with various properties, including those from strategic divestments, becoming available.
Prime office yields have remained stable or even seen slight compressions, signaling a stabilization phase. By the end of June 2025, prime office yields in European capitals ranged between 4.00% and 5.25%. Investors are becoming increasingly selective, prioritizing high-quality assets in strategic locations, which indirectly benefits businesses looking for premium, well-situated premises.
Navigating the European office rental market
For businesses seeking office space in Europe, understanding the evolving rental market is crucial. Office rental demand saw a 6% increase in the first half of 2025 compared to 2024.
This growth is largely fueled by expanding tertiary employment and a notable increase in office attendance, reflecting a return to collaborative workspaces. However, this demand is not uniform across the continent.
Regional rental demand: a mixed bag
Significant regional disparities persist in office rental demand. London led the way with a substantial 31% increase, followed by Frankfurt with a 12% rise. In contrast, Paris experienced a 12% decline. This indicates that businesses need to conduct thorough market research tailored to their specific target cities.
Strategies focused on cost rationalization are increasingly favoring well-served peripheral areas over central business districts, especially for companies looking to optimize their real estate spend without compromising accessibility.
Vacancy rates and future supply
Overall office supply continues to grow across Europe. However, some cities like London, The Hague, Milan, and Madrid have seen a decrease in their vacancy rates, suggesting a tightening market in these locations. Central district vacancy rates are stabilizing, while those in peripheral sectors are on the rise.
To address long-term vacancy concerns, many cities are actively encouraging the conversion of vacant office spaces into other uses and limiting new constructions. This trend could lead to a more balanced supply-demand dynamic in the future, providing a more stable environment for businesses planning their office space needs.
Source: allnews.ch
