According to Savills latest “European office research” study, office occupancy in Europe reached 1.6 million sq m in the second quarter of 2024, an increase of 9% year-on-year, bringing take-up in the first half of 2024 to 3.7 million sq m, an increase of 5% compared to the first half of 2023, although 7% below the average of the last five years.

European office investment transactions in the first half of 2024 totalled 14.1 billion euros, down 21% year-on-year. The United Kingdom continued to dominate the activity, with a 29% share of European office investment volumes, 24% above the average of the last five years.

Office occupancy in Europe 

According to Savills, the cities that reported higher occupancy than the average of the last five years in the first half of 2024 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: “In the first half of 2024, the office market in Lisbon showed significant growth in take-up. The data indicates that Lisbon remains a top choice for companies with significant growth ambitions, demonstrating both resilience and potential for growth in qualitative and quantitative aspects. The market in the capital is anticipated to undergo a significant transformation, driven by several high-quality projects in the pipeline, which are expected to meet the increasing demand and its associated requirements for quality.”

Unoccupied office rates in Europe increased marginally from 8.6% to 8.8% during the second quarter of 2024, partly due to the return of some secondary space to the market. The main markets continue to register the lowest vacancy rates, with Paris and the main German cities remaining below 6%. The average rent for prime office space in Europe has risen by 2.4% over the last twelve months.

In terms of absorption by sector, Savills concluded that in the first half of 2024 the banking, insurance and finance sector took the lion’s share of leasing activity, with 25%, up 17% on the first half of 2023, notably due to the major European financial centres, including the City of London, which rose from 26% to 34%. The services sector was the second busiest group; however, activity fell to 22% in the first half of 2024 from 28% in the first half of 2023, followed by the technology sector with 13%.

Christina Sigliano, EMEA Head of Global Occupier Services Director at Savills, comments: “Overall, office letting activity across Europe so far this year 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. For this type of space, we are also often seeing longer leases being taken out, as tenants who can secure prime space choose to commit for a longer period. Others are being driven more by business strategies: some companies have temporarily reduced their workspace while awaiting more favourable economic conditions, and others more permanently in order to align themselves with new working arrangements.”

Investment in offices in Europe

Savills has concluded that high interest rates continue to restrict European office investment transactions. European office investment transactions in the first half of 2024 totalled 14.1 billion euros, down 21% year-on-year and 60% lower than the average for the first half of the last five years, which was 36 billion euros. The UK continues to dominate the activity with a 29% share of office investment volumes in Europe, 24% above the average of the last five years. The average prime office yield in Europe remained stable at 4.9% quarter-on-quarter during the second quarter of 2024. The yield for offices in Vienna increased by 25 basis points, which, together with a 50 basis point movement in Paris La-Défense, were the only markets that witnessed a movement in yields during the quarter. 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, although Oslo (4.75%) and Madrid (4.90%) appear to be the most undervalued markets in relation to sovereign bond yields. At the other end of the spectrum, there was little movement in prime yields compared to sovereign yields in Lisbon, Bucharest and Copenhagen. 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 is still a gap in expectations between buyers and sellers, although this seems to be gradually narrowing as buyers and sellers adjust their price ambitions.”