Summary

The performance of the European office real estate market is strongly connected to the growth of the continent's economies. Though the European economy is recovering from the consequences of the Covid-19 pandemic, the office real estate industry still has a long way to reach pre-pandemic levels.

Occupier demand has slowed, and uncertainty has increased resulting in a 40 percent drop in office take-up in 2020 compared to 2019. Although we do not expect offices to be fully occupied until at least the end of 2021, as uncertainty fades take-up is projected to pick up, growing by 7 percent in 2021 over 2020. Barcelona (59 percent p.a. in 2020-2021), Paris Central Business District (CBD) (52 percent), Cologne (42 percent), and Central London (29 percent) will see a faster recovery in office leasing activity.

Key Market Trends

Offices Remain a Core Sector

Although Covid-19 has changed the way people work, there is still a high demand for office space. According to INREV, a European organisation that shares knowledge on the non-listed real estate business, offices are still a favoured asset category for European investors, particularly those headquartered in France and Germany.

Prime rents increased by 0.5 percent on average in the Q3 2021, following increases of 0.3 percent in the Q2 2021 and 0.1 percent in Q1 2021. For the first time since the pandemic began in Q2 2020, annual growth has returned to positive territory with rents now 0.3 percent higher year-on-year. Fortunately, no markets saw a decrease in rentals throughout the Q3 2021. Yields continue to fall, albeit slowly, with the European prime yield falling 3 basis points to a new low of 4.16 percent in the third quarter.

Rise in rental prices of office properties in European cities

Office market has historically been the most popular asset type among real estate investors, accounting for 40% to 50% of total investment volume. The lion's share of European investment activity is concentrated in Paris and London, as well as Germany's big four (Berlin, Frankfurt, Munich, and Hamburg). Central Paris garnered 3.8 billion euros in investments in the Q2 of 2021, which was 500 million euros higher than Central London. The London Stock Exchange is one of the world's largest foreign exchange markets, and many major global companies such as HSBC, BP, Unilever and Barclays have their headquarters there. The office real estate sector in London has historically been one of the most competitive, with prime yields as low as 3.5% as of the third quarter of 2020. Yields in Germany's big four were significantly lower at less than 3%.

Competitive Landscape

Office real estate market in Europe is relatively fragemnted. The market is anticipated to bounce back to normalcy by the end of 2022. Companies are gearing up to meet required needs for future and lot more companies are entering the market for further opportunities. Some of the office real estate developers in Europe are Hochtief Aktiengesellschaft, Koninklijke Bam Groep, NCC AB, Balfour Beatty and Strabag.

Additional Benefits:

The market estimate (ME) sheet in Excel format
3 months of analyst support

ページTOPに戻る

Table of Contents