Office occupancy in Europe reached 1.6 million sqm in the second quarter of 2024, an increase of 9% year-on-year, bringing absorption in the first half of 2024 to 3.7 million sqm. There was also an increase of 5% compared to the first half of last year, although 7% below the average of the last five years.
According to Savills' latest “European office research” study, European office investment transactions totalled 14.1 billion euros up to June, down 21% year-on-year. The UK continued to dominate activity, with a 29% share of European office investment volumes, 24 per cent above the average of the last five years.
The cities that reported occupancy above the average of the last five years in the first half of the year include Prague, Lisbon, London, Barcelona and Madrid with 45%, 40%, 25%, 11% and 9% respectively. Frederico Leitão de Sousa, Head of Offices at Savills Portugal, comments that "in this first half of 2024, the Lisbon office market has shown a marked growth in take-up. The figures show that Lisbon continues to be a city of choice for many companies with major growth plans, so it will continue to show resilience and growth potential in both qualitative and quantitative terms. It is expected that the market in the capital will continue to undergo a major transformation due to the various quality projects in the pipeline that will satisfy the growing demand and its respective demand for quality."
The main markets continue to record the lowest vacancy rates
Paris and the main German cities remained with vacancy rates below 6%. The average rent for prime office space in Europe has risen by 2.4% in the last twelve months.
Christina Sigliano, EMEA Head of Global Occupier Services Director at Savills, emphasises that "overall, office leasing activity across Europe so far is up on the same period last year, although there are some variations between cities. Part of this is due to a shortage of suitable stock, with many tenants renewing existing leases rather than opting for space that lacks the required amenities and good sustainability credentials."
According to Savills, the average prime office yield in Europe remained stable at 4.9% quarter-on-quarter during the second quarter of 2024. Since the first quarter of 2022, prime office yields have risen by an average of 157 basis points. Taking this data into account, most European offices remain in fair-value territory. At the other end of the spectrum, there was little movement in prime yields in Lisbon, Bucharest and Copenhagen compared to sovereign yields. The difference between average market yields and calculated yields remained stable on a quarterly basis.
James Burke, Director, Global Cross Border Investment at Savills, says, "We are now starting to see in the data the correlation between where office capital values have adjusted most significantly and the markets where investment volumes are starting to recover. The data shows that office investment volumes in Spain and Norway appear to be closer to their average of the last five years during the first half of the year, following more significant price adjustments. In all markets, there continues to be a gap in expectations between buyers and sellers, although this seems to be gradually narrowing as buyers and sellers adjust their price ambitions."