According to a recent study by BNP Paribas Real Estate, take-up on the European office market remained stable in 2024. In total, take-up amounted to 7.96 million m² in the 18 main European markets*.
However, the report points out that some markets are rebounding strongly, such as Dublin (+58%) after a gloomy 2023, Amsterdam (+17%), Berlin (+7%) and Brussels (+6%).
Lyon (+2%), Cologne (+1%) and Barcelona (+1%) are holding their own. Lastly, Paris and its inner suburbs and London posted declines of -7% and -6% respectively.
BNP Paribas Real Estate also notes that "after an encouraging recovery in the second and third quarters of 2024", the European rental market experienced "a slowdown in the fourth quarter, posting a decline of -8%, with certain major markets such as Paris and German cities still weakened by an uncertain political and economic context".
Prime rental values still on the rise
Against this backdrop, the overall vacancy rate in Europe stood at 9.1% at the end of 2024, up 90 basis points year-on-year. "The strongest increases in Berlin (+280 bp over 12 months) and Dublin (+240 bp) can be explained by major deliveries of new buildings in recent quarters," explains Argie Taylor, Head of International Investment Group at BNP Paribas Real Estate.
According to the consultancy, there is a gap between the CBDs (Central Business Districts) of the 13 major European markets, which have an average vacancy rate of 5.4%, and the peripheral districts of the same markets, where the average vacancy stands at 10.5%.
" This trend is becoming more pronounced with each passing quarter (from 350 bp in 2020, the gap has reached almost 500 bp by the end of 2024), illustrating the growing polarization observed in a number of cities. Better-quality assets in the most central and best-served sectors continue to find takers, in contrast to second-hand buildings or those in peripheral locations, which are suffering from a growing lack of interest from users."
In addition, the preference for centrality and quality continues to underpin the upward trend in prime rental values in most European cities, according to BNP. "Over one year, the strongest growth was seen in Brussels (+14%), Paris (+12%), London and Amsterdam (+7%) and Madrid (+6%). Overall, rental values rose by 5.4% in 2024 for prime properties in the main markets, compared with +3.3% on average for all properties. "
Investment: volumes on the rise again
After reaching a low point in 2023, commercial property investment at the end of 2024 was up 21% on 2023, to €157.4 billion. "This rebound can be seen across all asset classes. The adjustment of values continues, combined with improved yield prospects and lower borrowing costs, favoring the return of invested capital", states BNP Paribas Real Estate.
The European office market posted a 2024 volume of €40.7 billion, up +2% on last year, the first annual growth since 2022. "The office market share of total investment now stands at 26%, significantly lower than in 2019 (49%), reflecting investors' still cautious approach to this asset class," says Argie Taylor
Furthermore, the decline recorded in the three main European markets (UK, Germany, France) continues, despite a significant easing in the second half of 2024. "In contrast, some markets are experiencing strong expansion, notably Poland (+278%), Norway (+119%) and Sweden (+105%). Belgium, Italy and Ireland are also on the rise, with increases of 73%, 60% and 23% respectively.
Prime office yields plateau
The improved macroeconomic context and lower borrowing rates have enabled prime yields to stabilize throughout 2024. "For office space, a plateau has been maintained since the end of 2023", according to the council.
" Paris and London posted prime yields of 4.00% following initial signs of compression in the third quarter, dethroning Stockholm (4.05%), which had been in first place for a year. These three cities are closely followed by Copenhagen (4.10%) and Munich (4.20%).
" The gradual rebound in volumes invested and the expected fall in interest rates should enable yields to remain stable in 2025, or even enter a phase of gradual compression for certain markets," explains Argie Taylor.
" Office markets continued to cope with an uncertain political and economic environment in some European countries, and with investor caution in this asset class, which has been affected by structural changes in working patterns over the past five years. Overall, 2024 ended with a stabilization in take-up and a slight increase in volumes invested in office space. The year 2025 could see a more pronounced recovery if the economic and financial context clears up for the long term", he concludes.
*The 18 main European markets targeted by the BNP Paribas Real Estate study are Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg, Munich, Lyon, "Central Paris", "Central London", Brussels, Barcelona, Madrid, Dublin, Milan, Rome, Luxembourg, Amsterdam and Warsaw.