European office market thrives on premium demand

According to Cushman & Wakefield's latest EMEA Offices Update, the European office market is experiencing a significant shift, characterised by surging demand for top-tier office spaces and a widening gap between available supply and occupier needs.

European offices - Cushman and Wakefield

In 2025, leasing activity for "Grade A" office spaces reached an unprecedented 52% of all office leases across EMEA. This strong demand led to prime rents increasing for the twentieth consecutive quarter and a sharp decline in Grade A vacancy rates to a mere 3.5%. Simultaneously, new office development pipelines have shrunk to their lowest levels since 2016, intensifying competition among occupiers and creating new opportunities for investors. Improved confidence in the market is also evident as lenders have re-entered with more favourable loan terms.

This "flight to quality" is a key driver, with European office take-up reaching 10.5 million m2 in 2025. Occupiers are increasingly prioritising modern, energy-efficient, and centrally located spaces to enhance workplace quality, attract talent, and align with long-term corporate strategies. Central business districts accounted for 67% of all activity, highlighting the value placed on connectivity and collaboration. Notably, Frankfurt, Vienna, Dublin, Luxembourg, and Marseille all saw substantial increases in leasing activity.

As a result, prime supply continues to shrink. While overall vacancy remained stable at 9.8%, Grade A availability fell to 3.5%. Several major markets, including Birmingham and Edinburgh, now have less than a year's worth of prime supply, intensifying competition.

This sustained demand has fuelled rental growth, with prime office rents increasing by 1.4% in the final quarter and 4.6% over the year. The UK and France, particularly London's West End, Paris CBD, Leeds, Newcastle, and Lyon, were leaders in this growth due to strong demand for quality space.

Space under construction has decreased for the fourth consecutive quarter, reaching its lowest level since 2016. Completions also declined by 11% compared to 2024. Rising construction costs, higher financing rates, and viability concerns have limited new projects, leading to an anticipated supply shortage in the coming years. Pre-let levels have risen to 47%, indicating occupiers are securing space earlier in this increasingly constrained environment.

Investment confidence is also improving, with total office investment volumes reaching €52 bn in 2025, a 14% increase from 2024. London, Paris, and major German cities remain prime destinations for investors. Cross-border capital flows, led by North America, grew by 45%. Prime yields have moved inward for the sixth consecutive quarter, reflecting better market sentiment.

Lenders are re-engaging due to improved financing conditions, with debt now available for core assets at up to 60% loan to value and margins below 200 basis points. The expansion of non-bank lenders further boosts market liquidity.

Looking forward, Cushman & Wakefield expects continued, albeit moderated, rental growth in 2026 and 2027. The primary challenge remains the limited pipeline of high-quality development. With new projects constrained and premium spaces quickly absorbed, supply shortages are projected to worsen, sustaining competition and supporting further rental resilience.