In the first half of 2024, the European office market has shown signs of stabilisation after a downward trend in investment. According to BNP Paribas Real Estate's analysis, after a 5% drop in rental activity in the first quarter, demand recovered in the second quarter with a 4% increase. During the first six months of the year, total rental volumes remained constant compared to the previous year, registering 3.73 million square metres in the 18 major European markets.
The most notable activity was recorded in Dublin with an increase of 119% compared to Q2 2023. Other cities such as Düsseldorf (68%), Barcelona (35%), Brussels (44%), Munich (31%), London (24%) and Berlin (14%) also showed significant increases, thanks to large transactions in excess of 10,000 sqm.
At the end of June 2024, the availability rate in Europe reached 8.4%, an increase of 90 basis points over the previous year. This figure masks significant disparities, with high quality assets in sought-after sectors remaining attractive, while lower quality offices or those in peripheral areas are attracting less interest.
"At the same time, significant asset deliveries in recent quarters have boosted immediate supply in several European markets, such as Berlin, where availability reached 847,000 sq m at the end of June, 81% higher than a year earlier, and Dublin, where new development deliveries in H1 2024 exceeded the annual average figure for the past five years," explains Argie Taylor, head of BNP Paribas Real Estate's international investment group.
The increase in prime rents is also notable. "Structural changes in work habits continue to challenge demand for office space, as occupiers focus on upgrading their status and opting for top-quality assets in easily accessible locations," adds Taylor. Prime rents have seen notable increases in Brussels (18%), Madrid and Warsaw (11%), followed by London and Paris (10%). Overall, in the top 18 European markets, prime rents have increased by an average of 6.4%.
Investment shows signs of recovery
In terms of investment, the office segment has shown a gradual recovery, with €74.7 billion invested in H1 2024, representing a 7% increase compared to H1 2023. The office market captured only 24% of total investment in Europe, much less than the 47% in 2019.
"Investment in the three main European markets has fallen in the first half of the year, but a turnaround is expected with the return of large office deals in the markets. However, notable increases have been recorded in the Nordic countries (Norway: +190%, Denmark: +82%, Sweden: +28%), as well as in Italy (+99%), Poland (+189%), Belgium (+233%) and Luxembourg (+685%), suggesting a return of confidence in the sector," notes Taylor.
Finally, prime office yields have stabilised, with lower rates in Stockholm (3.95%), London's West End (4.15%), and the central business districts of Paris and Berlin (4.25%), thanks to an improved macroeconomic backdrop and lower borrowing rates. These yields are expected to remain stable as the market recovers.