Last year, a Bank of England expert was quoted as saying that interest rates will stay low for the next 20 years. In general, a low interest rate environment attracts more business investment and provides a boost to the services sector, which currently acts as the main driver behind Europe’s economic growth. 

The services sector currently accounts for 66 per cent of the total GDP in the EU, according to the World Bank, and those countries with the most dominant services sectors are forecast to see the strongest economic growth over the next five years, including Luxembourg (79 per cent of total GDP), UK (71 per cent), the Netherlands (70 per cent) and France (70 per cent).

Strong services sector growth will create office-based employment growth and new demand for office space. Oxford Economics forecasts that 3.1 million additional office based jobs will be created over the next five years across Europe, reflecting 4.9 per cent growth. We expect to see the largest increases over that period in London (+182,000 office based jobs), Madrid (125,000) and Paris (90,000).

Assuming a ratio of 10 sq m of space for each employee, Europe will need an additional 31 million sq m of office space to keep pace with this demand. The professional, science and technology sectors will contribute 1.1 million additional jobs, representing 7.4 per cent growth in this sector, more than any other sector.

However, a shortage of good quality, available space across Europe’s CBDs is already limiting occupiers’ choices to relocate as vacancy rates have dropped from 6.1 per cent to 5.4 per cent over the past 12 months. As a result, prime CBD office rents have risen 6.2 per cent on average over the same period, up from 4.0 per cent over the previous 12 months.

We expect another year of low vacancy rates and rising rents, albeit at a slower pace than 2019, and reduced incentives in many core European markets favouring landlords. New, speculative development will be more common across core cities as rental growth is outpaced by development cost growth and developers favour cities with the lowest vacancies including London and Berlin.

Tenants will need to plan real estate decision-making further ahead and also consider flexible solutions.

Further information

Read more: The impact of a low rate environment