DEMAND for office space in Europe rebounded strongly last year from Covid-19, helping the segment claim higher rents and partially offsetting the price correction from surging interest rates.

A total of 12.6 million square metres of office space was leased on the continent in 2022, a 15 per cent jump from the previous year when many staff worked remotely because of the pandemic, data compiled by broker Cushman & Wakefield show.

With leasing volumes well above the 15-year trend, rents climbed 6.2 per cent in the final quarter compared with a year earlier, the strongest annualised reading since the middle of 2008, the broker’s data show.

Fuelled in part by businesses eager to lure back staff, the robust demand shows how the operating backdrop for property firms is holding up. Rising financing costs have pushed real estate yields higher, and tighter credit markets create risks of forced sales, putting valuations under pressure.

Companies are also pursuing tougher new climate targets, which has led to a surge in demand for green office space. Supply in the segment is tight as rising inflation and higher borrowing costs deter some developers.

“Occupiers are focused on taking the best-in-class space in the most desirable locations to attract and retain staff,” said Nigel Almond, Cushman & Wakefield’s head of data analytics. Businesses are also keen on securing space in buildings that meet tighter environmental standards, he added.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

The broker identified an increase in activity in 23 of the 30 European office markets it tracks. Still, the increase in activity wasn’t enough to offset a slight rise in available space as new projects opened and some companies shrunk their footprint.

The total amount of space available across Europe rose 0.7 per cent year on year to 22.6 million square metres, Cushman’s data show. Luxembourg has the lowest level of availability at 4.2 per cent, followed by Hamburg, Berlin, Munich and Paris.

Rising costs have begun to dent construction activity. There were 4.3 million square metres of space completed in 2022, down from 4.8 million square metres a year earlier. The amount currently under construction is at the lowest level since 2017, the broker’s data show. BLOOMBERG