Best Locations in Western Europe for Business Expansion

Optimism and Opportunity in Europe’s Office Sector

The economic environment in Europe is on the upswing, shaping a positive outlook for the office market. As the economy strengthens and business confidence grows, companies are feeling more optimistic about their future. This optimism is translating into increased demand for office spaces, especially in key markets like London, Paris, and Madrid.

Between January and September of 2024, a total of 7.4 million square meters of office space was leased across Europe, showing a 3% increase compared to the same period in 2023. More than half of Europe’s markets, including major cities like London, Brussels, Madrid, and Barcelona, experienced growth in leasing volumes.

A significant trend in the office leasing market is the movement towards Grade A office space. These modern, well-located buildings offer top-tier amenities and energy efficiency, making them highly sought after by companies. Grade A leases now make up over 50% of leasing activity in major cities, showcasing how businesses are prioritizing quality office environments to support their employees’ well-being, attract top talent, and fulfill corporate sustainability goals.

While tenants are chasing after premium office spaces, they are also being mindful of costs. Prime office rents are expected to increase by an average of 4.4% in 2024, slightly lower than the 5.7% growth seen in 2023. Despite the slower rent growth, the demand for high-quality office spaces remains robust, especially in cities where availability is limited. Businesses are likely to continue seeking premium office spaces in the future while exploring ways to manage costs effectively.

The strong demand for prime office spaces is forecasted to drive rent growth in the short term. However, with new office completions reaching their peak at 5 million square meters in 2024, vacancy rates across all office grades are expected to rise. While the influx of new developments will contribute to increased vacancies, most of the new office spaces are in prime locations, where demand remains high. As a result, vacancy rates are likely to stay low in sought-after areas, while older, less efficient buildings might experience higher vacancies.

European Union’s Energy Performance of Buildings Directive (EPBD) is pushing the office sector towards sustainability and carbon reduction. This directive enforces higher energy efficiency standards as part of the drive towards achieving net-zero emissions. Property owners are advised to be prepared for these changes, as they could impact asset values, leasing terms, and tenant demand significantly.

The evolving tenant preferences are driving a shift towards higher-quality, flexible office spaces. Landlords are adapting to this change by repositioning and refurbishing older buildings to meet modern tenant demands. This trend is particularly noticeable in major cities like London and Paris, where older office buildings are being revamped to appeal to tenants.

In some instances, older office buildings in peripheral areas might see diminishing demand as tenants opt for newer, more efficient spaces in prime locations. This could lead to repurposing older office stock for alternative uses such as residential or mixed-use developments. Repurposing is becoming a feasible solution in areas where traditional office spaces are facing low demand, especially in non-central locations.

Investing in sustainability and repositioning older office buildings will be crucial to staying competitive in the evolving market. As landlords strive to meet changing tenant needs and environmental requirements, the trend of upgrading and enhancing older properties is expected to continue.

Amid these changing trends, having proactive strategies focused on sustainability, climate resilience, and high-quality assets will be vital for long-term success in the office market. The sector is poised for a steady recovery, offering significant opportunities for those who are ready to adapt to the evolving landscape.