European office market sees prime rents growth in Q4

According to Catella's Q4 2025 Office Market Overview, which analysed 27 cities across 16 European countries, prime office rents in Europe continued a moderate upward trend.

Katharina Ganschow

At the same time, prime yields mostly stabilized after significant adjustments in previous quarters. This suggests that the market for high-quality, centrally located office assets is achieving stability after a period of repricing.
The average prime rent across these cities reached €48.35/m2 per month, representing an average annual growth of 3.9%. This growth is primarily driven by a "flight to quality" phenomenon, with businesses seeking premium spaces in central locations. London's West End remains the most expensive market at €174.00/m2. Frankfurt (+9.6%), Rotterdam (+9.1%), and Stockholm (+9.1%) recorded strong year-on-year rental growth, while Dublin and Luxembourg saw flat rents. Notably, none of the surveyed cities experienced a decline in prime rents.
Prime yields averaged 4.80%, remaining high due to elevated interest rates and structural changes such as increased vacancies, reduced post-pandemic income, and the prevalence of hybrid work models. While reduced occupier demand has tempered investor appetite, quarterly yield movements were minor, indicating that the valuation adjustments in many central markets are largely complete.
A growing divergence between office and residential markets is influencing investment strategies. Since 2020, prime office capital values have generally fallen across many markets, with London's West End being a notable exception, experiencing a 34% increase. Similar capital value growth rates are otherwise only seen in the residential sector, where values continue to climb due to structural supply shortages. This disparity, which would be even more pronounced when comparing equivalent quality segments, underscores the significant potential for office-to-residential conversions.
Cities like Madrid, Berlin, Dublin, Warsaw, and Rotterdam are highlighted as having strong potential for such conversions. However, this potential is not universal; feasibility depends on economic factors, building characteristics, technical standards, and planning regulations. Assets designed with inherent use flexibility are particularly well-suited. Due to higher execution risk compared to other strategies, careful asset selection and clear capital expenditure requirements are crucial for success.
Katharina Ganschow, research manager at Catella Investment Management (CIM), commented: “If rental growth in the prime segment continues, this is likely to translate into moderate upward pressure on capital values for top-quality office properties, provided financing conditions continue to stabilise.”