Europe office demand rises on boost from banks and insurers
EUROPEAN office space take-up rose 9 per cent in the second quarter from a year earlier, partly driven by the finance and insurance sector and the enforcement of return-to-work mandates.
Firms linked to finance took the highest share of leasing activity in the first half of 2024, accounting for 25 per cent of take-up compared with 17 per cent in the same period a year ago, according to a report from broker Savills. The City of London saw its share of leasing activity jumping to 34 per cent from 26 per cent.
Prague, Lisbon, Barcelona, Madrid and the City of London all reported take-up over the five-year average in the first half. Professional and business services sector was the second-busiest group, though the take-up declined to 22 per cent in the period from 28 per cent a year earlier.
Office attendance is rising across Europe, as more and more businesses encourage their employees with mandates and incentives to return. Three-quarters of companies are now adopting a minimum attendance policy, according to broker CBRE Group, helping usage of space climb steadily across the continent.
Still, many businesses are shrinking their footprint as they await more favourable economic conditions, while a lack of suitable stock is prompting many tenants to renew their existing leases rather than settling for spaces that aren’t well placed, said Christina Sigliano, EMEA head of occupier services at Savills. These factors continue to weigh on Europe’s commercial real estate sector, she added.
European office investment transactions totalled roughly 14.1 billion euros (S$20.5 billion) in the first six months, down 21 per cent year-on-year, as high interest rates continued to restrict deals, Savills data showed. That’s down 60 per cent against the five-year first-half average of 36 billion euros. However, the UK propped up activity, driven by faster initial price adjustment and attractive yields for cash buyers.
Europe’s average prime office yields remained stable at 4.9 per cent during the second quarter. Savills said that overall European offices remain in “fair-value territory,” although Oslo and Madrid appear the most under-priced markets relative to sovereign bond yields.
“Across markets, there remains a gap in buyer-seller expectations,” said James Burke, director of cross-border investment at Savills. However, “this appears to be gradually closing, with both buyers and sellers adjusting their pricing ambitions,” he added. BLOOMBERG
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