European office market Q1 2025: a landscape of selective demand
The first quarter of 2025 brought a noticeable uptick in office letting activity across Europe. Compared to the same period last year, take-up increased by 6%. However, this growth wasn't driven by large, blockbuster deals; instead, the market saw a preference for smaller transactions.
Occupiers prioritize quality amid uncertainty
Amidst prevailing economic uncertainty, businesses continue to be cautious, favouring high-quality, smaller office spaces. This focus on prime, well-located, and modern buildings reflects a strategic approach to real estate, ensuring efficiency and attracting talent while managing costs.
Diverging rent trends: prime vs. average
A significant trend observed in Q1 2025 is the widening gap between prime and average office rents. Prime rents are holding strong or increasing, buoyed by consistent demand for the very best spaces. Conversely, average rents are experiencing slower growth. This is attributed to weaker demand for secondary locations and older buildings, often requiring landlords to offer higher incentives to attract tenants.
Vacancy rates tell a tale of location and quality
Vacancy rates present a varied picture across the continent. Central submarkets, particularly for new developments, boast low vacancy rates, indicating strong competition for top-tier locations. In stark contrast, peripheral areas and second-hand office spaces show significantly higher vacancy rates. This highlights the 'flight to quality' and the challenge faced by owners of less desirable assets.
What this means for businesses seeking office space
For businesses looking to rent office space in Europe, Q1 2025 data underscores the importance of defining your priorities. If a prime, central location in a new building is essential, be prepared for strong competition and higher costs. If flexibility on location or building age is possible, there may be opportunities in secondary markets, potentially with more favourable terms or incentives, although quality variation should be carefully assessed.
Source: realestate.bnpparibas.com
